The Regulatory Sandbox will provide testing opportunities for innovative solutions in a controlled environment under the monitoring and guidance of CySEC.

The presentation of the Regulatory Sandbox will take place on 11 June 2024 via an online event.

In light of the establishment of the Regulatory Sandbox, the CySEC Innovation Hub ceases its operations.

CySEC’s chairman, Dr. George Theocharides said: ‘The Regulatory Sandbox, marks a significant step forward in fostering responsible innovation within the financial services markets in Cyprus. Through this initiative, we aim to further encourage the development of innovative solutions in line with technological developments while ensuring investor protection and market integrity

Money Map Media’s II and IA spoke to Block Asset Management c0-founder Kevin Ballard to ask, What is the halving? Why is it so important? What happens next?

“Without being too technical, by design, there will only ever be 21 million Bitcoin. To achieve this, the reward given to miners for verifying transactions and adding new blocks to the blockchain is cut in half every 210,000 blocks (approximately 4 years) in an event known as ‘Bitcoin Halving’. On April 19th BTC block reward (release of new BTC) reduced from 6.25 BTC to 3.125 BTC.

“The primary reason for the halving is to control and gradually reduce the rate at which new BTC are released. Thus making BTC deflationary (unlike fiat currencies). This scarcity helps maintain BTC’s value over time. Quite the opposite to fiat currencies (susceptible to inflationary measure such as quantitative easing/money printing).

“BTC halving affects the value of BTC by way of simple economics, by reducing the supply, the price theoretically increases (providing demand remains constant or increases).”

Ballard continued: “The previous 3 halving’s (2012, 2016, 2020) led to price increases post halving, with BTC’s value surging significantly over the following 12 to 18months. What is so exciting this time is that BTC’s 2024 halving has come just 3 months after the SEC approved multiple spot BTC ETFs (Blackrock, Fidelity, Franklin Templeton, Ark Invest, Wisdom Tree).

“These BTC ETFs have made BTC more accessible than ever before, with a wave of institutional capital flowing into the market. This demand, plus the imminent (at time of approval) halving, pushed the BTC value to an all-time high. Post halving we expect to see BTC continue to set new highs.

“Interestingly, it is not BTC that benefits most post halving, it is in fact the wider market (altcoins). Whilst for the foresaid reasons, BTC has reached record high this year, most ‘altcoins’ (a term to collectively separate all other digital assets from BTC) remain some way from their all-time high. Historically, post halving, the wider market has greatly outperformed BTC (3x in 2020 and over 20x in 2021). This is known as ‘altcoin season’. A period where diversification into carefully selected ‘altcoins’ can lead to substantial returns.

“A word of caution however, selecting winners is not easy and custody can be challenging. The use of expert crypto fund managers is recommended, the use of leverage is not. Due diligence and diversification is of paramount importance. Try to use a manager with at least a three year track record (ideally five) and one that has industry recognition/awards.”

The paper, ‘The Evolution of Virtual Assets and Jersey’s Growing Role’, has been published by IFI Global in conjunction with Jersey Finance this week.

Highlighting that 5% – 10% of all assets are expected to be virtual by 2030 (Northern Trust and HSBC, 2023), the paper drills down into how the infrastructure needed to support tokenisation is developing.

In particular, it identifies a diversity in asset classes looking at tokenised options for investors. As well as asset classes that are well-known early adopters, such as real estate, the research found that projects are being worked on in almost all investment areas, including sustainable investing.

Other key findings include:

• Access to more investors is the main perceived benefit of tokenisation. Improved automation of the investing process was seen as the second greatest benefit.
• Family offices and high-net worth investors are seen as the investor class that is likeliest to be interested in tokenised options for the time being, particularly in illiquid alternative asset classes.
• Most managers intend to put their tokenised funds on private permission areas of public blockchains, rather than on pure private or public blockchains.
• More regulation is seen as the biggest factor in helping to advance tokenisation at the present time.

In addition, the paper explores the role of fund domiciles in supporting the growth of tokenisation, assessing in particular Jersey’s approach to virtual assets development.

The paper includes insights from representatives from the Government of Jersey, the Jersey Financial Services Commission, Digital Jersey and Jersey’s financial services industry to provide an analysis of the Island’s regulatory framework and tokenisation capabilities, as well as a number of real-life case studies.

Elliot Refson, head of funds at Jersey Finance, said: “Jersey is home to a growing number of credible virtual assets businesses, thanks to its world-class digital infrastructure, renowned regulatory framework and broad range of corporate vehicles – indeed, this year marks ten years since the world’s first Bitcoin fund was launched in Jersey.

“As this paper outlines, however, the sector continues to evolve at pace and being prepared for a variety of future permutations is prudent. While jurisdictions will vary in their perspectives on risk, Jersey’s financial regulator has an established approach to consider applications involving token-generating events with meaningful substance backed by a credible promoter.”

Simon Osborn, editor of IFI Global and author of the white paper, commented: “Whilst it may not yet be clear exactly how the process of digitalising investment assets will impact the funds industry, it is sure to be wide-ranging – and it could possibly mean a period of greater change for the industry than it has experienced to date. Domiciles like Jersey will be front and centre of whatever changes are coming as a result of this process.”

The white paper can be found on the Jersey Finance website. It builds on a previous paper published by IFI Global last year entitled ‘The Tokenisation of Real Assets’, which set out a bullish forecast for asset tokenisation.

This strategic partnership reflected “a unique synergy between a regulatory body and a security auditor aimed at establishing a world-leading security assessment standard in the blockchain industry”, ADGM said in a statement on 24 April.

Under the MoU, ADGM’s Registration Authority (RA) will collaborate with Hacken on developing security standards and on-chain monitoring solutions in relation to ADGM’s DLT Foundations framework.

Key elements of the MoU include collaboration in areas of security and compliance standards development, advanced DLT foundation monitoring arrangements and development of AI-enhanced monitoring solutions.

Hamad Sayah Al Mazrouei, CEO of ADGM RA said: “At ADGM, we are committed to setting unprecedented global standards in regulatory compliance and security by harnessing the transformative power of blockchain and AI. Our partnership with Hacken exemplifies our innovative drive and dedication to excellence.

“By integrating AI-driven technologies, we are pioneering a model of regulatory excellence that enhances transparency, security, and trust across the digital landscape. This represents the next frontier in SupTech, and take pride in spearheading this evolution.”

Dyma Budorin, co-founder and CEO of Hacken said: “Our experience in working with public sectors, such as our audits for the European Blockchain Services Infrastructure and our cooperation with government entities, provides a solid foundation for this partnership. Together, we are setting a new global standard for blockchain security and compliance.”

The rollout follows a recent consultation undertaken by the Jersey Financial Services Commission (JFSC) focused on the adoption of digital identity verification systems amongst financial services institutions and aligns with the obligations set out in Section 4 of the JFSC handbook to obtain evidence of where a customer lives.

The solution addresses the unique challenges of combining local and international address verification and significantly enhances time-consuming manual document verification processes, subsequently also improving customer experience, the firm said in a statement on 18 April.

Tiller is working with HSBC Expat, to support address verification for the Bank’s international customers, supporting its ambition to deliver digital frictionless onboarding for customers across multiple jurisdictions worldwide whilst at the same time ensuring compliance with the highest global regulatory standards.

Jonathan Wauton (pictured), co-founder and CEO of Tiller Technologies said: “Working with HSBC Expat highlights the importance of tech-based solutions in addressing complex challenges in offshore and international finance. We worked closely with HSBC Expat to create a strong solution which meets tough cross-border regulations and fits with the JFSC’s consultation efforts.”

Nicola Gardner, Head of Digital at HSBC Expat, added: “Incorporating an automated address check solution into our onboarding process reflects our commitment as a Bank to provide a fully customer-centric approach. Our aim is to enhance the speed and efficiency of onboarding for our customers, wherever they are in the world. It also underlines our ambition to drive our own growth safely through the adoption of digital solutions that align to cross-border regulation.”

Senator Ian Gorst, Minister for Financial Services, Government of Jersey said: “The Jersey government is actively working with financial Institutions and regulated businesses to promote the adoption of cutting-edge technology, such as digital onboarding services, for improved operational and regulatory practices. As such I am really pleased to see this Jersey-based initiative.”