Sumsub Compliance Digest—August 2023

Sumsub’s Legal Department has gathered the key AML compliance events impacting the crypto, gambling and fintech industries from the past month. 

From now on, these digests will be released every month. Subscribe to our newsletter to stay up to date with the most important events in the world of AML compliance.

Crypto

Main Trends: enhancing regulations, travel rule adoption, marketing restrictions

• Firms taking all reasonable steps and exercise all due diligence to comply with the Travel Rule.
• Firms remaining responsible for achieving compliance with the Travel Rule even when using third-party suppliers.
• Firms needing to comply with the Travel Rule when sending or receiving a cryptoasset transfer to/from a firm that is in the UK or any jurisdiction that has implemented the Travel Rule.
• Firms needing to regularly  review the implementation status of the Travel Rule in other jurisdictions and adapt business processes as appropriate.

In addition, the FCA is introducing promotion rules for cryptoassets from October 8, 2023. Financial promotions communicated from outside the UK, but which are capable of having an effect in the UK, are within scope of the financial promotions regime. This applies even if the promotion is not solely targeted at UK consumers.The goal of the upcoming rules is to ensure that cryptoasset financial promotions are fair, clear, and not misleading. Here’s what activities fall under the rules:

• all cryptoasset financial promotions
• cryptoassets that claim a form of stability or which claim their value is linked to fiat currency, cryptoassets that claim to be backed by a commodity or an asset, complex yield cryptoasset models or arrangements (e.g. borrowing, lending and staking)

• Financial promotions on social media
• Due diligence before a financial promotion is communicated
• Disclosing legal and beneficial ownership of cryptoassets
• Disclosing a firm’s regulated status

In addition, “refer a friend” bonuses are to be banned.

Who’s affected?

Travel Rule:

1. Cryptoasset exchange providers 
2. Custodian wallet providers.

Marketing: 

1. Cryptoasset exchange providers
2. Authorized firms considering communicating or approving cryptoasset financial promotions
3. Trade bodies for the cryptoasset sector
4. Other persons involved in communicating cryptoasset financial promotions to UK consumers.

Deadline:

Travel Rule—September 1, 2023

Marketing—October 8, 2023

Read more: 

Travel Rule Adoption

Marketing cryptoassets

All You Need to Know About UK Crypto Regulations—2023 Guide

What is the FATF Travel Rule? The Ultimate Guide to Compliance (2023)

Country: United States 🇺🇸

US SEC regulations enforcement

What happened?

The U.S. Securities and Exchange Commission (SEC) has been active in regulating and enforcing rules around cryptocurrencies, taking a number of actions against companies and individuals for failing to comply with several laws, including the Securities Act of 1933. 

The Securities Act of 1933, often referred to as the “truth in securities” law, has two basic objectives:

• requiring that investors receive financial and other significant information concerning securities being offered for public sale
• prohibiting deceit, misrepresentations, and other fraud in the sale of securities.

The SEC has been particularly focused on ICOs as they very much resemble traditional securities offerings. If the cryptocurrency is deemed a security, it must follow SEC rules and regulations.

The SEC has also initiated actions against a number of blockchain and cryptocurrency companies over fraudulent activities, such as misrepresenting the potential profits from investments or failure to disclose information to investors.

Who’s affected?

• Unregistered Exchanges: The SEC has also taken action against unregistered cryptocurrency exchanges. It requires that exchanges dealing with assets defined as securities must register with the agency.
• Unlicensed Broker-dealers: The SEC has also clamped down on unlicensed broker-dealers operating in the crypto space. The regulator has enforced that anyone involved in the sale of tokens deemed as securities must be licensed as a broker-dealer.

It’s crucial for virtual asset service providers, as always, to trade-off between compliance, investor protection and innovation.

Deadline:

Not yet presented

Country: Singapore 🇸🇬

MAS finalizes stablecoin regulatory framework

What happened?

After a public consultation, the Monetary Authority of Singapore (MAS) decided to introduce a “Stablecoin Issuance Service” as an additional licensing payment service. MAS’ stablecoin regulatory framework will apply to single-currency stablecoins (SCS) pegged to any G10 currency  issued in Singapore. In addition to standard money service business requirements (AML, technology, reserve assets, etc), issuers of such SCS will have to fulfill key requirements relating to: 

• Value stability: SCS reserve assets will be subject to requirements relating to their composition, valuation, custody and audit to give a high degree of assurance of value stability. 
• Capital: Issuers must maintain minimum base capital and liquid assets to reduce the risk of insolvency and enable an orderly wind-down of business if necessary. 
• Redemption at Par: Issuers must return the par value of SCS to holders within five business days from a redemption request. 
• Disclosure: Issuers must provide appropriate disclosures to users, including information on the SCS’ value stabilizing mechanism, rights of SCS holders, as well as the audit results of reserve assets.

Who’s affected: 

Stablecoin issuers operating in Singapore

Deadline: 

Not yet presented 

Read more:

MAS Finalises Stablecoin Regulatory Framework

Country: South Korea 🇰🇷

South Korea Passes the Virtual Asset User Protection Bill for User Protection

What happened? 

Now, crypto companies in South Korea will have to adjust their systems in accordance with the new regulation to stay compliant and avoid financial penalties. The Act will ensure that crypto users can protect their assets. 

Who’s affected?

Any virtual asset service provider involved in any of the following activities:

• The selling or buying of cryptocurrencies
• Crypto-to-crypto exchanges
• The transferring of cryptocurrencies
• The storage or management of virtual assets

Deadline:

The Financial Services Commission (FSC) of South Korea announced that the Act on the Protection of Virtual Assets Users is expected to go into effect in 2024.

Read more: 

Financial Services Commission: Government to Ensure Virtual Asset User Protection, Transaction Transparency and Market Discipline

South Korea Crypto and Travel Rule Regulations – All You Need to Know in 2023

Country: Namibia 🇳🇦

Namibia Virtual Assets Bill 2023 is now in force

What happened?

In July, the Virtual Asset Bill became law in Namibia. The Act proposes 5 classes of licenses for virtual asset providers. The regulatory authority responsible for supervising virtual asset service providers and associated activities will be presented in the National Gazette. The legislation seeks to ensure consumer protection, address market abuse, and prevent money laundering.

Who is affected?

Virtual asset providers operating in Namibia 

Deadline:

In force

Read more: 

National Assembly: VIRTUAL ASSETS BILL

Country: France 🇫🇷

The French AMF amends its General Regulation and its policy on Digital Asset Providers in light of enhanced registration and the MiCA Regulation

What happened?

Various areas of Digital Asset Providers license conditions are now covered by enhanced DASP registration promoted by the Autorité des marchés financiers (AMF)—the financial market regulator in France. The amendment prescribes adequate security and internal control systems; systems for managing conflicts of interest; clear, accurate and non-misleading information, public pricing policies, specific custody provisions (segregation of client assets vs. own assets); prohibition on using client assets without their express prior consent; agreement signed with clients, resilient and secure IT system; a signed agreement with clients, and a resilient and secure IT system. These changes, which will apply from January 1, 2024, are also intended to anticipate the transition to the European Regulation on markets in crypto-assets (MiCA) by adjusting the provisions relating to licenced DASPs.

Who is affected? 

Virtual Asset Providers

Deadline:

January 1, 2024

Read more:

Digital assets: the AMF amends it General Regulation and its policy on DASP in light of enhanced registration and the MiCA Regulation

Gambling 

Country: United Kingdom 🇬🇧

UK Gambling Commission (GC) provides a consultation on proposed changes to gambling operator regulatory framework

What happened?

On July 26, the UK GC proposed changes to Licence Conditions and Codes of Practice (LCCP), Remote Gambling and Software Technical Standards (RTS), and arrangements for Regulatory Panels. In particular, these updates will be related to:

• Improving consumer choice in direct marketing
• Remote game design
• Remote gambling: financial vulnerability and financial risk
• Strengthening age verification on premises (which could be further applicable to remote operators)

Who is affected?

UK-licensed gambling operators 

Deadline:

Consultation ends on October 18, 2023

Read more:

Summer 2023 consultation on proposed changes to Licence Conditions and Codes of Practice (LCCP), Remote Gambling and Software Technical Standards (RTS), and arrangements for Regulatory Panels

Country: Philippines 🇵🇭

PAGCOR details new regulatory framework for offshore gaming

What happened?

Philippine Amusement and Gaming Corporation (Pagcor) has announced the details of a new regulatory framework for offshore gaming licensees. In accordance with updated Gaming Licensing Regulations,  gambling operators shall provide or carry out internet gaming operations in the Philippines or through a Philippine legal entity only with a valid license. Non-licensed operators will be held liable in case they are found to be involved in any illegal activity. 

Who’s affected?

Gambling operators providing the services in Philippines

Deadline: 

In force

Read more: 

PAGCOR introduces new regulatory framework for offshore gaming

PS: Within a month upon the implementation of offshore gambling regulations, the Philippine Amusement and Gaming Corporation is taking legal action against 33 offshore gaming licensees, including some who have left the country, over unpaid fees. (Source)

Country: United States 🇺🇸

Responsible gambling in the USA

What happened?

On July 14, the National Council of Legislators from Gaming States (NCLGS) adopted a resolution to help states develop robust responsible gaming standards.

The NCLGS resolution includes the following suggestions:

• A single accredited national problem gambling helpline number within all jurisdictions
• State or jurisdictional advertising guidelines to ensure that marketing is 1) targeted only to those who are of legal age to gamble, 2) follows standards not to offer content, themes, and promotions that have special appeal to those consumers most at risk for gambling problems. These guidelines should also ensure that there are  programs that audit and monitor the content of third-party marketing affiliates
• Policies and programs that enable customers to discontinue their play temporarily or permanently through exclusion programs from gaming activities statewide and across multiple jurisdictions with multiple term lengths
• Coordination of gambling exclusion lists to prevent people with gambling problems and others on exclusion lists from problematic play in other states.

Who’s affected?

The gaming sector

Deadline: 

In force

Read more: 

NCLGs Helps States Develop Effective Responsible Gaming Standards

Perspectives/initiatives concerning other industries

European Commission welcomes provisional political agreement on EU Digital Identity Wallet (EUDI)

The EU Digital Identity Wallet will revolutionize digital identification by giving Europeans control over their personal data with the full convenience of mobile apps. They will be able to use online services and provide identity credentials in full control of their personal data. The EUDI wallet could be used for travel, health, banking, education, and more.

Read more:

Commission welcomes provisional political agreement on EU Digital Identity Wallet, Europe’s first trusted and secure digital identity app