Global Trustee and Fiduciary Services Bite-Sized Issue 6 2023

Bite-Sized | 2023 Issue 6 6 QUICK LINKS AIFMD ANTI-MONEY LAUNDERING CMU — RETAIL INVESTMENT PACKAGE CBDC COSTS & CHARGES CRYPTOASSETS ELTIF IFD/IFR LIBOR TRANSITION MIFID II/MIFIR MONEY MARKET FUNDS OPERATIONAL RESILIENCE SUSTAINABLE FINANCE/ESG WHISTLEBLOWING AUSTRALIA EUROPE LUXEMBOURG NORTH AMERICA UNITED KINGDOM CRYPTOASSETS ESRB Publishes Report on Cryptos and Decentralised Finance On 25 May 2023 the European Systemic Risk Board (ESRB) published a report outlining the systemic implications of crypto markets and proposing policy options to address the risks stemming from crypto-assets and decentralised finance (DeFi). The report finds that while this past year has been turbulent for cryptos and DeFi, the impact on the financial system was limited, also finding that the crypto market has few interlinkages with the traditional financial sector and the real economy, and none of those links are currently significant. The ESRB states that, given the exponential growth and high volatility of cryptos, they need to be closely monitored as they may come to pose systemic risks. These risks could materialise if, for example, interconnectedness with the traditional financial system increases over time, new connections are not promptly identified, or if similar innovations — such as distributed ledger technology — are also widely adopted in traditional finance. To better understand developments in crypto-assets and their potential financial stability implications, the report proposes a number of policy options. • First, the EU’s capacity to monitor potential contagion channels should be improved. This applies both to channels between the crypto sector and traditional finance, and to channels within the crypto sector. To this end, it is key to promote standardised reporting and disclosure requirements for: (i) traditional financial sector institutions such as banks that are exposed to cryptos; (ii) investment funds with crypto exposures; and (iii) entities such as stablecoin issuers or e-wallet service providers in the crypto sector. • Second, the report considers policy options to address risks arising from crypto conglomerates, crypto-based leverage, novel operational challenges, DeFi and crypto staking and lending. These policy options could also inform any future regulatory initiatives. Link to the Report here IOSCO Sets the Standard for Global Crypto Regulation On 23 May 2023 the International Organization of Securities Commissions (IOSCO) issued a consultation on detailed recommendations to jurisdictions across the globe as to how to regulate crypto-assets. In a major initiative designed to improve global standards of regulation of crypto-assets, IOSCO has set out how clients should be protected and how crypto trading should meet the standards that apply in public markets. The Recommendations cover six key areas, consistent with the IOSCO Objectives and Principles for Securities Regulation and relevant supporting IOSCO standards, recommendations, and good practices: 1. Conflicts of interest arising from vertical integration of activities and functions; 2. Market manipulation, insider trading and fraud; 3. Cross-border risks and regulatory cooperation; 4. Custody and client asset protection; 5. Operational and technological risk; and 6. Retail access, suitability, and distribution. IOSCO aims to finalise its recommendations by the end of 2023. Thereafter, it expects that jurisdictions will review their current regulatory frameworks to ensure that they comply with the standards and fix any gaps promptly. The consultation period closes on 31 July 2023. Link to Consultation here