This blog is a copy and paste of the CompliReg blog located here -

​This material first appeared on Linkedin here 

​This blog by Peter Oakes, Founder of Fintech Ireland and CompliReg.  Peter qualified as a lawyer in Australia, the UK and Ireland.  He is a director of a number of regulated innovative fintech and adviser to fintech and crypto firms and their professional service providers. Contact him here and follow him on Linkedin and Twitter (Fintech Ireland Twitter).
 
The first Irish regulated funds to take exposure to crypto-assets have been approved by the Central Bank of Ireland (CBI).

The funds, both Qualifying Investor AIFs (QIAIF), will obtain indirect exposure to Bitcoin, by acquiring cash-settled Bitcoin Futures traded on the Chicago Mercantile Exchange (CME). Before you get too excited looking to by some of the digital asset via the QIAIFs note that this channel of exposure is RESTRICTED TO PROFESSIONAL INVESTORS. [NB: As recently as March 2022 the the Central Bank has issued a warning on the risks of investing in crypto assets].  We have provided further details about the regulatory crypto investing landscape in Ireland under 'Further Reading' below.
 
Last month the CBI informed industry bodies that it had approved in principle at least one QIAIF with a low level of exposure to cash settled Bitcoin futures traded on the CME.
 
The two unnamed QIAIFs are the first type of such funds to provide indirect crypto exposure and approved by the CBI.
 
If you want your existing QIAIFs or you wish to establish a new QIAIF to obtain exposure to crypto assets, get in touch (details above).  I am asked on a regular basis by institutional investors and professional investors how they can get exposure to cryptocurrencies and other digitalassets via regulated products. Unless you are able to gain direct exposure via a virtual asset service provider (VASP), the Irish QIAIF model (non-UCITS) might be your avenue. Note however that the CBI has said it is highly unlikely to approve a UCITS proposing any exposure (either direct or indirect) to crypto assets. Thus retail investors wanting crypto exposure in Ireland need to turn to VASPs/Exchanges direct.

Through Fintech Ireland, CompliReg and the industry experts network, we know the lawyers, ManCos and depositories / custodians who can assist institutional/professional firms and funds promoters looking to gain exposure to the crypto markets.  Further, if you are seeking a registration as a virtual service asset provider or authorisation as a MiFID, emoney institution or payments institution to provide services to  institutional, professional and retail clients, check out our Authorisation Page.


Further reading:

• ID1145 - Central Bank of Ireland 44th Edition (20 December 2021) of the Central Bank AIFMD Q&A

​Question. Can a RIAIF or a QIAIF invest either directly or indirectly in crypto-assets?

Answer. Crypto-assets are generally considered to be private digital assets that depend primarily on cryptography and distributed ledger or similar technology. However, the nature and characteristics of crypto-assets vary considerably. For example, crypto-assets that are tokenised traditional assets (whose value is linked to an underlying traditional asset or a pool of traditional assets (such as financial instruments or commodities)) may have a different risk profile when compared to other crypto-assets that are based on an intangible or non-traditional underlying. For the purposes of this Q&A “crypto-asset” is used to refer to the latter type of crypto-asset. The Central Bank must be satisfied that direct or indirect exposure to crypto-assets is capable of being appropriately risk managed. As of the date of publication of this Q&A, the Central Bank has not seen information which would satisfy it that direct or indirect exposure to crypto-assets is capable of being appropriately risk managed. Though crypto-assets do not all have uniform characteristics, the Central Bank has noted that they can present significant risks, including liquidity risk; credit risk; market risk; operational risk (including fraud and cyber risks); money laundering / terrorist financing risk; and legal and reputation risks. Taking into account the specific risks attached to crypto-assets and the potential that retail investors will not be able to appropriately assess the risks of making an investment in a fund which gives such exposures, the Central Bank is highly unlikely to approve a RIAIF proposing any exposure (either direct or indirect) to crypto assets. In the case of a QIAIF seeking to gain exposure to crypto-assets, the relevant QIAIF would need to make a submission to the Central Bank outlining how the risks associated with such exposures could be managed effectively by the AIFM. The Central Bank’s approach in relation to crypto-assets will be kept under review, continue to be informed by European regulatory discussions on the topic and may change should new information or developments emerge in the future. 
​

• ​​ID 1100  - Central Bank of Ireland 36th edition (20 December 2021) of the Central Bank UCITS Q&A

​Question.  Can a UCITS invest either directly or indirectly in crypto-assets?

Answer. Crypto-assets are generally considered to be private digital assets that depend primarily on cryptography and distributed ledger or similar technology. However, the nature and characteristics of crypto-assets vary considerably. For example, crypto-assets that are tokenised traditional assets (whose value is linked to an underlying traditional asset or a pool of traditional assets (such as financial instruments or commodities)) may have a different risk profile when compared to other crypto-assets that are based on an intangible or non-traditional underlying. For the purposes of this Q&A “crypto-asset” is used to refer to the latter type of crypto-asset. The Central Bank must be satisfied that assets in which a UCITS invests are capable of meeting the eligible asset criteria for UCITS and that indirect exposure to the assets is capable of being appropriately risk managed. As of the date of publication of this Q&A, the Central Bank has not seen information which would satisfy it that crypto-assets are capable of meeting the eligible asset criteria for UCITS or that indirect exposure to crypto-assets is capable of being appropriately risk managed. Though crypto-assets do not all have uniform characteristics, the Central Bank has noted that they can present significant risks, including liquidity risk; credit risk; market risk; operational risk (including fraud and cyber risks); money laundering / terrorist financing risk; and legal and reputation risks. Taking into account the specific risks attached to crypto-assets and the potential that retail investors will not be able to appropriately assess the risks of making an investment in a fund which gives such exposures, the Central Bank is highly unlikely to approve a UCITS proposing any exposure (either direct or indirect) to crypto assets. The Central Bank’s approach in relation to crypto-assets will be kept under review, continue to be informed by European regulatory discussions on the topic and may change should new information or developments emerge in the future. 

• Central Bank of Ireland Warning (22 March 2022)

The Central Bank again emphasised that crypto assets are highly risky and speculative, and may not be suitable for retail customers. In particular people need to be alert to the risks of misleading advertisements, particularly on social media, where influencers are being paid to advertise crypto assets.  The Central Bank has published a plain English explainer for consumers on cryptocurrencies.

• European Supervisory Authorities (EBA, ESMA and EIOPA Warning (17 March 2022)

The ESAs warned consumers that many crypto-assets are highly risky and speculative. The ESAs set out key steps consumers can take to ensure they make informed decisions.

If you need assistance with an emoney or payments authorisation or an account information service provider registration application, check out Fintech Ireland and CompliReg's handy authorisation guides at https://fintechireland.com/fintech-authorisations.html

On 14 March 2022 (Central Bank of Ireland run date 15 March 2022), Ireland authorised Gemini Payments Limited.  This was the first such authorisation of an emoney firm since 27 October 2020.

Ireland is now home to 18 authorised electronic money institutions, 20 authorised payment institutions and 4 standalone account information service providers. We have updated our regulated fintech Map to version 6.0 where we showcase these firms.

Our Peter Oakes spoke with Charlie Taylor of the Irish Times on the authorisation of the Winklevoss twins Irish licence and wider digital asset issues facing Ireland.

In the article Peter Oakes said:

• an interesting play for Gemini in Ireland could be institutional wealth management and custody. Many large financial institutions, especially US banks operating in Ireland, have a strong interest in digital assets for both themselves and their clients. They generally segregate their trading and investment activities from the very specialised but fairly lucrative pricing and custodial responsibilities of digital assets.
• he expects to see Gemini to eye up a role in servicing Ireland’s €5.4 trillion assets under administration in the IFSC in the years to come.
• while there remains challenges about the perception of Ireland being an effective home for regulated digital assets, the arrival of Gemini as well as the existing Irish business of Coinbase help set the groundwork, and attraction, for other international and hopefully indigenous fintechs to follow bolstering employment in cutting edge technology and innovation.
• he expects Gemini will complement its new fintech licence with an Irish crypto asset registration to replicate its UK and international services.

Visit our Fintech Ireland Maps page for more information about the fintech and regtech companies we map.

Links:

1) Irish Times Article 20 March 2022: https://www.irishtimes.com/business/financial-services/winklesvoss-twins-secure-irish-e-money-licence-for-gemini-payments-1.4831606
2) Linkedin Post 20 March 2022: https://www.linkedin.com/posts/peteroakes_paymentservices-facebook-cryptoasset-activity-6911588283806277632-GaM0

Ireland's Minister of State for Financial Services, Credit Unions, and Insurance Seán Fleming TD today (Thursday 11th February) launches the Ireland for Finance Action Plan for 2021 following Cabinet approval.

The 2021 Action Plan has four priority areas; Sustainable Finance, Diversity, Regionalisation, and Digital Finance. It contains 16 new measures to build on the resilience shown by the IFS sector over the last year.

New actions, include:

• Establishing a Department of Finance Fintech Group
• Developing proposals for increased financial services collaboration in the Grand Canal Innovation District (GCID)
• Delivering a new Masters programme in fintech innovation
• Promoting careers for women in the Financial Services industry, as part of the ‘Career less Ordinary’ campaign
• Developing a portfolio of sustainable finance education programmes
• Working with the office within the Department of Finance tasked with encouraging greater competition in the Irish insurance market
• Promoting the Investment Limited Partnership vehicle

Ongoing initiatives:

• Engage at EU level on the latest Capital Markets Union proposals
• Engage at EU level on sustainable finance developments
• Engage on and analyse post-Brexit financial services issues
• Continue the rollout of Ireland’s sustainable finance innovation programme supporting the development of new IFS environmental, social, and governance products and services
• Deliver training programmes in sustainable finance and responsible investment supported by the Sustainable Finance Skillnet
• Maintain a regional focus in developing the IFS sector

Commenting on the 2021 Action Plan, Minister Donohoe noted:

Minister Fleming leads on the implementation of the Ireland for Finance strategy which strives for Ireland to be the recognised global location of choice for specialist international financial service. Ireland for Finance is the strategy for the development of the international financial services (IFS) sector in Ireland to 2025 and was included in the Programme for Government.

What is "Ireland for Finance?"

The Ireland for Finance strategy is structured around the following four pillars:

1. The operating environment pillar is focused on ensuring the policy, culture and legislative conditions underpinning IFS will support growth;

2. The technology and innovation pillar is focused on providing a collaborative approach to addressing emerging challenges and opportunities in technological developments;

3. The talent pillar seeks to ensure that we continue to have skilled people to meet the demands of the IFS sector, including meeting new and changing skills ; and

4. The communications and promotion pillar is focused on ensuring that Ireland’s IFS offering is communicated to all those who are or may be attracted to investing in Ireland.

Minister of State Fleming has identified his priorities for the coming year as Sustainable Finance, Diversity, Regionalisation, and Digital Finance.

Ireland for Finance utilises a whole-of-government approach which is supported through ongoing collaboration between public and private stakeholders and educational institutions to ensure the talent and expertise of all three sectors can continue to be successfully harnessed to build on existing achievements and secure the ambitions set out in Ireland for Finance.

The Strategy is updated each year by means of annual Action Plans. This approach ensures that the Strategy remains relevant and up-to-date in identifying and addressing emerging challenges. Each annual Action Plan contains a list of measures grouped under each of the four pillars to be actioned in that year with a responsible stakeholder tasked with leading on the execution of each measure.

The implementation of the Strategy is overseen by a public sector High Level Implementation Committee (HLIC) with assistance from an Industry Advisory Committee (IAC). This Joint Committee meets quarterly and it is chaired by Minister of State Fleming. The HLIC membership consists of senior officials of the Departments of the Taoiseach; Further and Higher Education, Research, Innovation and Science; Foreign Affairs; Business, Enterprise, and Employment; and Finance and the Chief Executive Officers of the IDA and Enterprise Ireland. The IAC includes key industry stakeholders such as representative bodies (secretariat), advisory firms and senior executives from companies across the different international financial services sectors.

Click here for Video

Cold day to be outside talking about the hot topic of #bitcoin and #cryptoassets / #digitalassets for Fintech Ireland with Will Goodbody of RTE, who also interviews Henrik Andersson, CFA (CIO Apollo Capital) and Lory Kehoe (Adjunct Assistant Professor, Trinity Business School) about their thoughts on #crypto as an asset class and regulation.

I am seeing:

1) a ramp up in scam investments, riding the epic wave of the #BTC price increase aimed at luring people into the FOMO (fear of missing out) opportunities; and

2) the loss of sight of the 'democratisation of financial services' and decentralised ethos' of #crypto in favour of speculative nature of 'assets' like bitcoin.

Don't read my comments as being negative on decentralisation and distributed ledger technology; they are leading to many interesting cost effective and time efficient applications.

Rather be wary of the bitcoin salespeople whose interests have noting to do with the " purely peer-to-peer version of electronic cash [that] would allow online payments to be sent directly from one party to another without going through a financial institution" heralded in the abstract of the Nakamoto paper.

Or put another way, 'don't lose sight of the forest for the trees'.

Linkedin Post here: https://www.linkedin.com/feed/update/urn:li:activity:6764935828859887616

And follow Fintech Ireland on LinkedIn here: https://www.linkedin.com/company/9349449

19 January 2021: Joint statement by the European Commission and the European Central Bank on their cooperation on a digital euro

The European Commission and the European Central Bank (ECB) are pursuing their efforts towards ensuring a strong and vibrant European digital finance sector and a well-integrated payments sector to respond to new payment needs in Europe. Taking account of digitalisation, rapid changes in the payments landscape and the emergence of crypto-assets the ECB is exploring the possibility of issuing a digital euro, as a complement to cash and payment solutions supplied by the private sector. Following the conclusion of the public consultation on 12 January 2021 and a period of preparatory work, the ECB will consider whether to start a digital euro project towards mid-2021. Such a project would answer key design and technical questions and provide the ECB with the necessary tools to stand ready to issue a digital euro if such a decision is taken. The ECB and the European Commission services are jointly reviewing at technical level a broad range of policy, legal and technical questions emerging from a possible introduction of a digital euro, taking into account their respective mandates and independence provided for in the Treaties.  

Read statement in PDF format here.

More on the Public Consultation from media release 13 January 2021:

• Public consultation launched on 12 October 2020 and closed on 12 January 2021.
• 8,221 citizens, firms and industry associations submitted responses to an online questionnaire, a record for ECB public consultations.
  
• Initial analysis of raw data shows that privacy of payments ranked highest among the requested features of a potential digital euro (41% of replies), followed by security (17%) and pan-European reach (10%).

“The high number of responses to our survey shows the great interest of Europe’s citizens and firms in shaping the vision of a digital euro,” said Fabio Panetta, Member of the ECB’s Executive Board and Chair of the task force on a digital euro. “The opinions of citizens, businesses and all stakeholders are of utmost importance for us as we assess which use cases a digital euro might best serve.”

The Eurosystem task force, bringing together experts from the ECB and 19 national central banks of the euro area, identified possible scenarios that would require the issuance of a digital euro. These scenarios include an increased demand for electronic payments in the euro area that would require a European risk-free digital means of payment, a significant decline in the use of cash as a means of payment in the euro area, the launch of global private means of payment that might raise regulatory concerns and pose risks for financial stability and consumer protection, and a broad take-up of central bank digital currencies issued by other central banks.

A digital euro would be an electronic form of central bank money accessible to all citizens and firms – like banknotes, but in a digital form – to make their daily payments in a fast, easy and secure way. It would complement cash, not replace it. The Eurosystem will continue to issue cash in any case.
A digital euro would combine the efficiency of a digital payment instrument with the safety of central bank money. The protection of privacy would be a key priority, so that the digital euro can help maintain trust in payments in the digital age.

​Peter Oakes Post on Linkedin