China to Pay State Employees in Digital Yuan

U.S. regulator, the Commodity Futures Trading Commission (CFTC), has fined Seychelles-headquartered crypto prime brokerage Falcon Labs as part of an overall settlement with the company.  The CFTC had found that the company had operated as an unregistered futures commission merchant (FCM) and furthermore, that it had enabled access to digital asset exchanges without the requisite registration.Photo by Joshua Hoehne on UnsplashSettlement termsIn a press release published to its website on May 13, the CFTC set out the nature of its settlement with Falcon Labs. The parties have agreed that Falcon Labs must discontinue its activities in acting as an unregistered FCM, with particular emphasis on it having provided U.S. individuals with access to digital asset derivatives trading.  Furthermore a fine of $1,179,008 has been applied in disgorgement and in addition, Falcon will have to pay a civil monetary penalty of $589,504. These penalties have been significantly reduced by comparison with the CFTCs original ask, on the basis that Falcon Labs cooperated fully with the CFTC’s Division of Enforcement over the course of the regulator’s investigative process into the activities of the company. In its statement the regulator set out its intent relative to enforcement going forward. Ian McGinley, the CFTC’s Director of Enforcement, stated:”The CFTC is taking the fight one step further by, for the first time, charging an intermediary that inappropriately facilitated access to those exchanges. Today’s action highlights that the CFTC will not hesitate to charge any entities—exchanges or intermediaries—who are providing customers access to digital asset products and services that require registration but have failed to appropriately register.” McGinley added that “the CFTC’s enforcement program has made clear it will not tolerate digital asset exchanges that fail to register with the CFTC or comply with the agency’s rules that maintain integrity in the derivatives markets.” No admission of guiltIn responding to the CFTCs original complaint, Falcon Labs tried to up the ante in terms of compliance. It moved to improve customer identification controls. As a consequence of its market position as a trading intermediary Falcon Labs enabled customer trading on a number of digital asset exchange platforms.  That activity included facilitating U.S.-based institutional customers relative to crypto derivatives trading. It allowed its own account with various digital asset trading platforms to be used, through a system of sub-accounts, by its customers, oftentimes without adequate customer information having been sought. In reaching this settlement with the CFTC Falcon Labs has not made any admission of guilt relative to the regulator’s findings. Alongside paying the agreed upon fines, it will voluntarily agree to adhere to the implementation of improved controls and to withhold its services from user groups that are deemed to be restricted, including all U.S. nationals. Taking to the X social media platform to comment on the matter, Mike Sellig, a partner at New York-based law firm Willkie Farr & Gallagher, claimed that the settlement demonstrated that the CFTC was following in the footsteps of the Securities and Exchange Commission (SEC), establishing “a body of widely applicable precedent.”

Japan appears to be gearing up for the potential launch of its central bank digital currency (CBDC), the digital yen, as the government and the Bank of Japan (BoJ) collaboratively lay the legislative foundation for its rollout. While neither the BoJ nor the government has officially committed to the CBDC launch, recent developments indicate an accelerated push for its development. The BoJ's heightened focus on digital yen comes amidst concerns about falling behind China's and Europe's rapid progress in the CBDC space.Photo by Wenhao Ji on UnsplashOvercoming legal issuesAccording to a report by Japanese media outlet NHK, in a recent meeting, the Japanese government and the BoJ discussed future tasks and legal issues related to its CBDC implementation. To ensure a smooth and legally unobstructed launch, Tokyo aims to establish the necessary legal framework well in advance. Local news media Coinpost reported that the proposed legislation is set to "assume the introduction of the digital yen" and may involve amendments to key laws such as the Bank of Japan Act, the Criminal Code and the Civil Code. The goal is to finalize the list of required legal amendments by spring of the current year. In a meeting between Japan's central bank and the Finance Ministry, executives from relevant ministries and central bank directors explored various aspects of the CBDC. Discussions included the collaboration between a potential central bank digital currency and private cashless businesses, with a focus on convenience and personal data protection. Finance Ministry keen on launch ASAPLast month, the central bank received a report from a Ministry of Finance expert panel which recommended the launch of the digital yen without delay. The Ministry of Finance's December meeting addressed the division of roles between the Bank of Japan and intermediary banks, proposing a "two-tiered model" where domestic commercial banks play a pivotal role in digital yen issuance. Acting as intermediary institutions, these banks will bridge the gap between the central bank and digital yen users. The government and the BoJ are also contemplating ways to involve private businesses in the CBDC project while ensuring fair competition. Security and data privacy considerationsKey considerations in the discussions involve interoperability with other payment methods, ensuring security and handling user information safely. There is also an exploration of potential cross-border payment options. The government and the BoJ are committed to a comprehensive approach that considers various aspects of the CBDC project. Japan's unique context in the CBDC landscape is highlighted, with its continued reliance on cash and the presence of multiple private-sector tokenized money initiatives. Notably, the country boasts over 100 institutions and enterprises exploring digital currency through a digital currency forum since 2020. Separate initiatives, such as the MUFG-backed Progmat DLT platform, contribute to Japan's diverse digital currency landscape. Providing another example of progression in the digital assets arena, it emerged in September that the country is looking to permit startups to raise capital from venture capital firms using digital tokens rather than traditional equity. 

Growing Concerns about Single Crypto Exchange Listings in KoreaAccording to Yonhap Infomax, there is increasing concern about single crypto exchange listings in the Korean market, following the recent arrest of two former Coinone employees.©Pexels/RODNAE ProductionsCrypto listing briberyThe individuals were detained by the Seoul prosecution for allegedly accepting about 3 billion KRW (equivalent to over $2.2 million) in bribes to list a certain cryptocurrency on the exchange.Prosecutors are investigating if these suspects were also involved in the listing of the Puriever token, which is reportedly connected to the kidnapping and murder of a woman in her forties in Gangnam, Seoul.Single exchange-listed cryptosA recent report by the Financial Services Commission (FSC) revealed that 389 cryptocurrencies were listed on a single Korean exchange in the second half of last year, a decrease from the previous year’s 403. Despite the decrease, the trend of single exchange listings continued. Exchanges often exclusively list specific cryptocurrencies to gain a competitive edge, as investors typically prefer larger exchanges with greater liquidity.However, these cryptocurrencies may lack proper review and management and are often highly volatile. The FSC report showed that 34% of cryptocurrencies listed on a single exchange had a market cap of less than 100 million KRW (~$76,000). The Financial Intelligence Unit also warned investors about price fluctuations and liquidity shortages.High volatile cryptocurrencies are attractive to exchanges, as they can lead to increased transaction fee profits.Transparent listingTo address this issue, experts advocate for a transparent listing process.One lawyer in the crypto industry noted that there is a global trend of regulating cryptocurrencies as securities, and if relevant bills pass in Korea, their issuance and disclosure will be regulated. Clear guidelines on disclosures could resolve the issues of single crypto exchange listings, the legal advisor added.Another industry insider has called for investor caution, stressing the need to consider the potential delisting of these crypto assets.