CARF, MiCA, and TFR: International Reporting Obligations

Transcript

so welcome to the next session we will speak about two new regulations one of them is carf the crypto asset reporting framework tax uh tax reporting obligation that will be introduced as of 2026 and the second one is MAA and TFR uh that's the market in crypto asset um regulation that will amongst others be relevant for uh Swiss uh crypto service providers that won't to access the EU Market but let's start with a quick introduction my name is Martin Buri I'm corporate tax partner at PWC price waterhous Coopers I serve the financial

services clients so mainly Banks and asset managers and in the last couple of years also crypto and blockchain clients so we have supported many players in the market like crypto exchanges um like token issuers crypto funds crypto Brokers crypto dealers crypto Banks so the full spectrum of all the different players and I have to say it's very exciting industry uh and it's uh it's nice to see um uh what um what Innovation we have uh in this market I'm here with my colleague Cecilia and hand over for a quick introduction so I'm Cecilia Perina I'm senior manager in the PDC Switzerland

legal so in the legal team of PWC and so basically we are assisting uh crypto Banks crypto actors service providers to access the market obtain their license but also then Implement all the process that they need to implement um and uh yeah it's a very Innovative uh world with everyday new regulations or everyday new things to learn and uh new things to uh adapt to our clients I'm happy to talk about M and TFR after my colleague Martin good so we will kick off with the crypto asset reporting framework with carf so now tokens crypto assets obviously have

a value so people pay a price for it Bitcoin is back to to to 67 68,000 US dollar uh so we have considerable values for this crypto assets and as soon as something has a value the tax authorities are basically interested in the trans transactions and who owns these crypto assets and a a a blockchain is basically a paradise for a tax inspector because all the information is on the blockchain and it cannot be deleted and it's even accessible however there is a small problem the tax inspector doesn't know who is behind the transaction so the tax authorities have to fully rely on the

Declaration that the taxpayers make in their annual tax declarations if we compare this to traditional assets here we have the so-called common reporting standards and those of you are coming from Banks may be familiar with the CRS so this has been introduced already a couple of years ago uh and Banks and other financial institutions have to report uh information about the bank accounts to the tax authorities and now with the with the digital assets the oecd wants to bring back the information level that the tax Authority has back to the level that they have for traditional assets and you will see it later on on

the next couple of slides the tax authorities will even get more information for the crypto transactions compared to the the Dig uh to the traditional Assets in November last year 50 countries have announced that they will in produced carve as of 1 January 2026 you see here on the map the the green and the yellow countries that have committed to carve including Switzerland for example including lonstein uh the UK the US Singapore and many more the yellow ones are the EU countries they

will introduce carve under deck 8 so deck 8 is the framework that um uh transfers carve uh into the local uh um EU countries uh regulations under CRS under common reporting standard we have more than 100 countries here as said we have at the moment 50 country so I expect here more to come in the future so this will not stay um or be limited to these 50 countries that have announced now but now let's uh go uh a little bit into detail what does it mean who has to report and this is maybe the most interesting question and most relevant

question who has to do a reporting so we have the so-called crypto asset service provider that is defined in this carve regulation and these are basically the crypto Brokers the crypto intermediaries um or crypto exchanges so anybody who is involved in intermediation of crypto assets so on the one hand side we will have the traditional banks that may fall under this definition if they have a crypto offering but we will also have fintech company that only um uh have um crypto crypto service offerings so we have both from the traditional world and from the new world players that will

fulfill this definition then we have we have the clients so the crypto asset users these can be individuals or entities and the crypto asset service providers have to do a due diligence um on their clients so they have to know their clients they have to ask the clients to fill out the self certification in order that they know who is my client in which jurisdiction is this client tax resident not every uh not every uh client will be reportable so report able are those that are resident in a

jurisdiction that has implemented carf already and that is not um an excluded person so an excluded person can for example be another financial institution um and this would not have to be reported so we have certain exemptions uh so that not not everything has to reported and then finally once we have uh assessed and analyzed all this data and know what we need to report we have to uh uh finally do the reporting um and here uh an important difference to the common reporting standard is that the carve is transaction based so transactions crypto transactions have to

to be reported compared to the common reporting standard where the ending balances of the bank accounts have to be reported and that's more information so the tax authorities won't do not want only to know what is the ending balance as of the 31st of December last year but they want to know what which transactions took place from January to December and this um data has to be reported in an aggregated uh manner per crypto asset per client so that's the basic approach behind let's come back again to the question what is a crypto asset um Prov

provider so who has to do the reporting here um we have the the following definition everybody that effectuates exchange transactions or makes available a trading platform is a crypto asset service provider and effectuating an exchange transaction that these are basically the crypto Brokers uh and the crypto dealers that initiate a transaction for clients but making available a platform also qualifies as a as a crypto asset service provider so if somebody sets up a platform and runs this platform uh this person may be um uh liable to do

the reporting just establishing a pure software that's not yet in scope but as as soon as somebody sets up the software and runs the plat firm itself then we are in scope and that will be interesting to see how this will be implemented in practice we had in the in the previous discussion the question how do we treat defi from a kyc AML perspective we have exactly the same question here so as as as long as soon as we have still a person or an entity involved in a dii platform that runs the platform this person will um will be um obliged to do the reporting if we have a completely

decentralized um uh platform with nobody involved anymore then nobody can do the reporting and here we will see how this involves evolves in practice um what do will The Regulators do will The Regulators require still a person to be involved also in defi platforms or not so these are some open or many open questions still at the moment how this guideline will then be implemented in practice another uh important um question is what is a crypto asset um maybe every everybody has a slightly different understanding what is a crypto asset a crypto asset for carve purposes is basically um every crypto asset except and I come now to The Orange Box

I hope you can see that except Central Bank digital currencies those are not included in carf and also the so-called specified electronic money products are not included so if you don't know what an um specify electronic money product is so don't worry I guess you are not the single one in the room um Loosely speaking these are stable coins backed by only one currency so a US dollar stable coin may fall under this definition if we have a stable coin on on a basket of US dollar and and Euro for example uh then it would not be uh fall under this definition the two ones in The Orange Box are excluded because they will have

to be reported on the com reporting standard and that's the good news so we don't have an overlap of the CRS and carve so either a transaction is reportable under carve or under CRS that's the good news and makes it makes it easier to to implement um we have uh on the right hand side an additional gray box the crypto assets not for payment and not for Investments also do not have to be reported um now try to think what what what this is because everything that has a value on the market can in my view be uh used as an investment so all those tokens that

have a value on the market are very likely in scope of the reporting uh but imagine you have a token that certifies for example that your watch uh is not a fake uh I would assume this doesn't have a value this is not for investment purposes and cannot be used as a payment so this would like likely be excluded from the reporting but the the the definition here is very broad as we'll have really most of the of the cryptos uh on the market that um have to be reported going forward now which transactions have to be reported um we have on the one hand side a crypto asset to Fiat transactions um we have crypto asset for

crypto asset transaction so if a Bitcoin is is exchanged against an ethereum uh that would have to be reported and the third category and that's maybe a little bit surprising uh that also retail payment transactions have to be reported here luckily we have a threshold of $50,000 us uh so if somebody uh buys a chewing gum um uh and pays by Bitcoin this wouldn't have to be reported because it's below $50,000 if somebody purchases a car that costs more than $50,000 and pays by Bitcoin or another crypto asset this uh would have to be reported in the future now what is the timeline where do

we stand I mentioned the countries announced November last year that they will introduce carf as of 1 January 26 so in January 26 the crypto asset service providers have to start collect information in order to be able to report this information then in 2027 so the first reporting will be done in 2027 we will have now a little bit more than one and a half years to go until the the the crypto asset service providers have to collect start to collect the information this seems a long time but practice from The

Experience from the from the common reporting standard implementation shows that this time is really required in order to assess what is my data where is my data in which quality do I have my data um how can I I I collect this how can I convert it into the form that is then uh required to do the reporting this may um need some engineering some process adjustments um some adjustments in the data quality and so on so this time is is required in order to be ready as of um 1 January 2026 um to do this reporting and with that I would like to

hand over to cilia so um to EU regulation marketing crypto asset regulation MAA and transfer of funds regulations it's a regulations at the EU level that will apply to EU countries as well as members of the EA given that I have now 11 minutes and 20 seconds to present you both uh regulation of course it will stay very high level I don't know if you have ever started to read a EU regulation it's not like our Swiss regulation with 20 Pages it's a Mika and Tif far I think together it's like more than thousand pages so

don't hesitate after during the break uh we're here to answer the the details questions so first uh Mika so what does and to whom does it apply so first there are some tokens so you need to define whether your token is in scope or not in scope of MAA and of course it's not the same definition as our payment utility and asset token so here basically uh MAA will Define uh mainly three subcategories and one General category the first one is the eony token so the Eon token is a token that has a stable value in relation to a single fiat currency so here we can think about

uh usdt for example then on the other side you have the asset reference tokens uh again this uh have a stable value but with two or more Fiats so it could be also one Fiat so here it starts the question are you e-money are you asset reference token that will be some discussion in the future uh it's also about other type of cryptocurrencies it could be also also Commodities uh for example we have the DMD Diamond then you have the utility token that looks a bit more like the usual definition of utility token so providing digital assets to a good or service and then you have the other tokens uh like peon

ethereums and out of scope uh first thing it's Financial instrument and basically how Mika is designed is to regulate whatever in the crypto asset was not already regulated by miid so if you are miid you are not Mika and hopefully we don't have too many laps there are some some laps and you will have to comply maybe with both regulation at the same times but the idea is that you don't have to regulate and you don't have to comply with both regulations is one or the other and uh for example non-fungible tokens are also out of the scope of MAA at least for the moment once you define whether your token is in scope then you def you need

to define whether your service is actually in scope and here you have a super long list of services uh going from custody uh then portfolio management advise execution only on crypto assets uh placement of crypto assets exchanges of course so very broad range of any type of financial services related to crypto assets and and interestingly you have here on the yellow box also the issurance of crypto assets so it's not only providing services but uh MAA also regulates the person the company that actually issue the crypto assets and uh here we have again a different

regulation depending on which type of token you are issuing you have the eony token you have the asset reference token and here with a difference whether you are significant non-significant value of course if you are on non nonsignificant value you have less obligation to comply with and if you have significant eat money or asset reference tokens then again more regulation more rules to be complied with this is if you look at this slide uh this is how it goes from the small here uh no prior approval it's the issue of any other to type of tokens and at the end here you have the eony

tokens significant where you have a huge uh regulation and of course a need of an authorization by the authorities I'm not going to go through every requirement here but for example um I can choose the white paper so you will of course have to issue a white paper that will need to comply with certain rules you will have to have some information in it more or less like the prospectus ID that we have for traditional Investments Capital requirements is also of importance uh if you issue e-money or an asset reference token you will now you will need to comply with regulatory uh Capital requirements you will also receive the money from the investor every time you

sell your e-money token and your asset reference you will receive money and you will not be able to actually do whatever you want with that money that you are receiving you will have uh in certain cases have to keep some part of this um assets that you are receiving from the investors and you will be able to invest the rest but invest in very strict way so the idea is that if you issue a eony token and or asset asset based reference token you are not able to take the money and buy anything you want with this you have to keep the money and uh you have also to be able to uh rbur the PE person that actually bought the token um at certain conditions um you also need to

have a very clear plan of what happened if you fall into bankruptcy how it's going to be in the future how can you actually rebose all of the token holders so it goes into very much detail for the issuance of a of a eon or asset ref token then if you are here come back to uh service providers so if you provide services one of the service that we have listed before with respect to one of the crypto assets then again you will need to obtain a license from one one of the EU member State country um maybe here I can say you are you have the chance to passport within EU so you can choose one country and then you can actually access the whole EU Market uh and here again

you see very general requirements uh and plus other specific requirements depending on what type of services and it's an addition if you provide custody plus brokerage you need to comply with all the rules for custody plus brokerage one last thing of Mika it's also the prevention of Market abuse so basically it's the IDE to say that market prohibition to Market manipulation inside the trading and all of those kind rules that currently apply to Securities will also apply to the other crypto asset token uh referred by MAA timeline uh as you see by the end of December

2024 you will not be able to provide any service with crypto Assets in the EU without a license first uh so that's very soon by the end of the year and here is where I talked to you about the num numerous pages and regulations so you first have MAA now we are still in the Regulatory and implementing technical standards so the detail basically of MAA and uh there is already the two first packages that are um available and the last package um uh is not yet published but should be soon published with all of the details uh of MAA Mika for Switzerland what does it

mean so no Switzerland is not yet as you can see uh in the EU neither a member of the EA so we don't need to comply with Mika uh but that is if you provide services in Switzerland to person based in Switzerland so as soon as you want to Target clients that that are domiciled in the EU you need to think can I do it for the moment maybe you can do it now as from the first of January 2025 you will not be able to do it anymore there is this idea of the reverse solicitation same as mid if a client comes to you you haven't done any marketing then you don't need a license um the way reversal liation is going to be applied for uh

Mika is still in discussion but what we can see is that it's going to be very very strict um so basically it's close a bit more the type of services that the Swiss entity will be able to provide to its EU based uh client um meaning that mainly um maybe some Swiss companies will have to actually obtain those licenses under MAA and for that you cannot do it just with one single person being there domiciled you will actually need to incorporate a company and have some substance the question question is also Switzerland is not I mean it's a market it's not it's maybe small but it's important yet how can uh EU MAA

compliant company can uh actually provide services to swis person that's not that easy either depending on the type of services that you're going to render for example if we are talking about custody uh you might also need a for example a fintech license and uh you might not be able to do it uh again only on a reverse solicitation basis and any type of marketing done from Switzerland for a Casp might also be subject to some uh Regulation and Licensing and TFR uh I have 1 minute 38 seconds that's good because we have actually the panel just before that discussed and found Solutions so you

already have solution of how to comply with the this travel rule basically and so again uh here in scope uh any transfer of crypto assets any type of funds um maybe not going through the Autos school what is a TFR actually you need to obtain information with respect to the payer usually if you are the institution the payer is already your client and then your client will send money to the PE and you will need actually to obtain information from the PE also and this is if we are talking here about uh crypto assets that's the name the the distributed Ledger address crypto asset account number and lay this applies also if you have uh for

example one of those service provider in the m in the middle you will need if you are the middle person uh you will need to collect the information even if you are just the middle person the middle person will have to um collect the information and send them again here by the end of 202 24 um countries um service providers based in the EU will have to comply with this TFR so not Switzerland but Switzerland we already have our travel rule that is uh discussed in the finma guidelines detailed in the FMA guidelines and so we have something that is similar uh to

this TFR in the European Union the question we have seen it's maybe the inter inter that's an horrible word how you can operate with the others and actually doesn't work as I cannot pronounce that word and uh the the question is how maybe Switzerland will be impacted by TFR does it mean for the moment it's very hard to send money out of Switzerland because you need to comply with the travel rule would it be easier not maybe we can discuss uh that next year um with some solutions and hopefully Switzerland does not stay alone and stay here actually in the Middle with all the money and crypto assets staying in Switzerland while moving freely across Europe uh that

would be a a Pity definitely and that ends uh and if you have any questions we are here in the room we have other people from PC like jeanclaude Adria and uh other people also uh for crypto custody key managements and so not only regulatory but other questions related to crypto uh we are here lunch break the all afternoon [Applause]