It seems like crypto regulation is becoming a huge priority this year. The Chamber of Digital Commerce (CDC) has strongly opposed the Digital Asset Anti-Money Laundering Act (DAAMLA), introduced by Senator Elizabeth Warren, urging the Senate Banking Committee to dismiss it due to concerns about its potential negative impact on the U.S. digital asset industry and national security.
Other international regulatory developments include Turkey's progress on its Central Bank Digital Currency (CBDC) project, aiming to modernize its financial infrastructure without disrupting existing services, and Hong Kong's steps towards establishing a regulatory framework for digital assets, focusing on the tokenization and custody of these assets.
Calls for Senate Banking Chair to Dismiss Elizabeth Warren's AML Bill
The Chamber of Digital Commerce (CDC) has vocally opposed the consideration of the Digital Asset Anti-Money Laundering Act (DAAMLA) by the Senate Banking Committee. The CDC's concerns, which were articulated in a statement on social media on Feb. 20, focus on the potential repercussions of the bill, which they argue could severely harm the digital asset sector. Perianne Boring, the CDC's founder and CEO, addressed a letter to Senator Sherrod Brown, the committee's chair, cautioning that the bill poses a "clear and present danger to U.S. national security and the broader economy."
Boring's criticism of DAAMLA is sharp, suggesting that its passage could lead to the obliteration of substantial value for U.S. startups in the crypto space and adversely affect the savings of many Americans invested in digital assets. She equates the compliance demands of the bill to an impractical and unattainable burden, likening it to expecting an ink manufacturer to track every person who handles a dollar bill printed with their ink globally.
The CDC's stance is part of a broader industry apprehension regarding the DAAMLA, with other organizations like the Blockchain Association also expressing some major concerns. They argue that stringent regulations could inadvertently undermine U.S. national security by pushing elements of the crypto industry overseas.
Senator Elizabeth Warren, one of the bill's proponents, introduced DAAMLA to the Senate in July of 2023, aiming to curb illicit uses of crypto assets for money laundering and terrorism financing. The bill has been criticized for its perceived exaggeration of the role of digital assets in illicit activities and for setting forth compliance requirements seen by many as unrealistic for firms in the sector.
The political backdrop to this legislative debate includes the reelection campaigns of Senators Warren and Brown in 2024, representing Massachusetts and Ohio, respectively. Their stance on DAAMLA and its implications for the crypto industry may become a big point of contention, especially with crypto-friendly figures like lawyer John Deaton entering the political arena, aiming to challenge Senator Warren in the upcoming elections.
Turkey's Journey Towards a Digital Currency
Meanwhile, the Central Bank of the Republic of Turkey (CBRT) has recently released an English version of its report on the first phase of its Central Bank Digital Turkish Lira Research and Development Project, initially published in Turkish last year. This project marks Turkey's foray into developing its own central bank digital currency (CBDC), a big step towards modernizing its financial infrastructure.
The initial phase, which began in 2021, focused on several key components including the digital identity system, digital currency system, abstraction layer, service layer, and wallet. The design allows for a modular system where components can be independently replaced, enhancing flexibility and ease of updates.
This phase culminated in 2022 with the CBRT conducting its inaugural trial transactions using the digital Turkish lira, leveraging the Digital Turkish Lira Collaboration Platform. This platform is a joint effort between the CBRT, the Scientific and Technological Research Council of Türkiye, and major Turkish technology firms Aselsan and Havelsan. The digital currency is envisioned as an intermediated retail CBDC, distinct from wholesale payments which are being addressed separately.
The CBRT's approach plans the digital Turkish lira's integration into the existing financial ecosystem without disrupting or competing with current financial products and services. A novel aspect of the project is its preference for programmable payments, allowing for the creation of contract templates with specific conditions. This system invites public institutions and licensed entities to engage in the development and management of these contracts, ensuring a broad participation in the digital currency's ecosystem. Privacy provisions are strengthened by incorporating self-sovereign identity, ensuring user privacy and security.
Looking ahead, the second phase of the project will explore smart and offline payments, the latter of which still requires a protocol decision. This phase will also delve into the legal and economic implications of the digital currency, aiming to integrate digital transactions into intermediaries’ mobile applications. However, a detailed timeline for this phase remains unspecified.
In parallel to the CBDC project, Turkey is also actively working on establishing a regulatory framework for cryptocurrencies. The country's current lax regulations on cryptocurrencies have been a point of concern, contributing to its placement on the Financial Action Task Force’s gray list.
Regulating Digital Assets: HKMA's Latest Framework
Asia is also making crypto regulations a priority. On Feb. 20, the Hong Kong Monetary Authority (HKMA) took major steps towards regulating the field of digital assets by issuing two pivotal letters to the heads of authorized institutions (AIs). These communications aim to establish a regulatory framework for the tokenization and custody of digital assets, aligning with international standards and practices.
The first letter points out the necessity for AIs to engage with the HKMA proactively, demonstrating compliance with expected standards and requirements for custodial services of customer assets. These standards span across eight key areas, including governance, risk management, asset segregation, and anti-money laundering measures, although they are articulated in broad terms to ensure wide applicability.
The second letter addresses the sale and distribution of tokenized products not covered under the Securities and Futures Ordinance, emphasizing that existing supervisory and consumer protection measures equally apply to tokenized forms due to their similar characteristics and risks to underlying products. This letter clarifies that stablecoins will be regulated separately. Moreover, it also highlights the potential for tokenization structures to transform the nature of an asset, like turning fractionalized interests into a collective investment scheme.
This approach by Hong Kong aims to balance innovation in the digital asset space with the need for robust regulatory oversight to protect consumers and maintain the integrity of the financial system.
