TRM Weekly Roundup | July 11, 2024

Welcome back to another Weekly Roundup! In this edition, Ari Redbord , Isabella Chase , and Angela Ang break down what you need to know about this week’s top stories in global crypto policy and regulation, including:

• New crypto hack numbers from TRM’s threat intelligence team

• The release of FATF’s fifth Target Implementation Report

• What the Labour Party’s win means for digital assets in the UK

• The inclusion of crypto in the Republican party’s priorities in the US

• Russian Central Bank’s guidance to use crypto to circumvent sanctions

• Korea’s market abuse surveillance system and new regulatory framework

Let’s dive in ⬇️

💻 Hacks double in first half of 2024, according to TRM report

The latest numbers from TRM's threat intelligence team show twice as much money has been stolen in hacks and exploits in the first half of 2024 compared to the same period in 2023.

By June 24, 2024, hackers stole USD 1.38 billion, compared to USD 657 million this time last year. Similar to 2023, a small number of large attacks made up the lion’s share of the haul: the top five hacks and exploits accounted for 70% of the total amount stolen so far this year. Private key and seed phrase compromises remain a top attack vector in 2024, alongside smart contract exploits and flash loan attacks.

💡 So why the increase? There could be a number of factors in play or just happenstance. "While we have not seen any fundamental changes in the security of the cryptocurrency ecosystem, we have seen a significant increase in the value of various tokens—from bitcoin to ETH (ether) and Solana—compared to the same time last year," said Ari Redbord, global head of policy at TRM Labs in reporting by Reuters. This means that cybercriminals are more motivated to attack crypto services, and can steal more when they do, Redbord explained.

Read the full report here.

🌐 FATF Releases its 5th Target Implementation Report

On Tuesday, Financial Action Task Force (FATF) released its fifth “Report on the Targeted Implementation of Recommendation 15 on Virtual Assets and Virtual Asset Service Providers.” According to FATF, although countries seem to have improved on the licensing and supervision of VASPs, many still struggle to get the fundamentals of a risk assessment right. Regarding the travel rule, one-third of the countries that plan to allow crypto assets have yet to pass legislation, and only two countries that have implemented are “compliant” or “largely compliant.”

In addition to implementation, the report also focuses on emerging risks with a focus on stablecoins, DeFi, unhosted wallets, and peer-to-peer transactions. FATF cites TRM’s Illicit Crypto Economy report on the increased adoption and use of stablecoins for illicit activities, including fundraising campaigns by terrorist groups.

The report outlines different approaches that individual countries have taken to mitigate risks in these areas, but does not advocate for specific responses. As for the next steps, FATF will continue monitoring these areas and supporting countries in implementing standards—prioritizing countries with materially important virtual asset sectors.

🇬🇧 What does historic labour win in the UK elections mean for digital assets?

Last week, the UK’s Labour Party—led by new Prime Minister Keir Starmer—secured a historic victory, winning 412 seats and achieving a majority of around 170 seats in Parliament. This significant win marks the end of 14 years of Conservative-led government. Prime Minister Rishi Sunak's Conservative Party suffered its worst electoral defeat in history, securing only 121 seats. As the dust settles on this historic election, what does it mean for for digital asset regulations and efforts to tackle illicit finance?

Labour’s manifesto largely omitted details on digital assets, possibly due to the comprehensive Financing Growth plan released in January. This plan outlines commitments to making the UK a leader in tokenization, supporting financial innovation sandboxes, and backing the Bank of England’s work on a CBDC. The manifesto did, however, propose a “Regulatory Innovation Office” to help regulators manage new technologies, which could potentially benefit digital assets.

On the topic of illicit finance, Foreign Secretary David Lammy committed to addressing “London’s dirty money problem” by forming a transatlantic anti-corruption council. While in opposition, Labour MPs vocally supported combating fraud and corruption, further backed by the Financing Growth Review's commitments to reduce fraud through collaboration with tech and telco companies. Overall, it remains unclear how high digital assets and illicit finance rank on the priority list.

🇺🇸 Republicans include crypto in 2024 platform

This week, the Republican National Committee adopted a platform that lays out the party's priorities, including support of digital assets innovation—a first in American politics.

Under the section header "Build the Greatest Economy in History," the platform asserts the need to "Champion Innovation," and writes, "Republicans will pave the way for future Economic Greatness by leading the World in Emerging Industries."

Specifically under the header "Crypto," the platform asserts, "Republicans will end Democrats’ unlawful and unAmerican Crypto crackdown and oppose the creation of a Central Bank Digital Currency. We will defend the right to mine Bitcoin, and ensure every American has the right to self-custody of their Digital Assets, and transact free from Government Surveillance and Control."

Whatever your politics—or views on a CBDC—the Republicans party’s inclusion of crypto in its platform is an extraordinary first for the growing ecosystem and further proof that every branch of the US federal government is fully engaged in the discussion.

🇷🇺 Russian Central Bank tells businesses to use crypto for payments to circumvent sanctions

After years of sanctions on Russia since the invasion of Ukraine in February 2022, last week Reuters reported that Russia's central bank told businesses they should use use crypto to facilitate payments with foreign partners such as China, India, and the UAE to counter Western sanctions imposed over Russia's war on Ukraine.

According to the reporting, Elvira Nabiullina, governor of the central bank, told a financial conference in St.Petersburg that "New financial technology creates opportunities for schemes which did not exist before. This is why we softened our stance on the use of cryptocurrencies in international payments, allowing the use of digital assets in such payments.”

Nabiullina said Russia’s business partners in various countries were under "tremendous pressure," but said a new global payments system not involving Western institutions would gradually emerge since many countries felt vulnerable using only one international payment system with no alternatives. Nabiullina added that Russia and other countries were in discussions over the BRICS Bridge payments system, which would be designed to bridge the financial systems of member countries.

💡 This is not the first time Russia has looked to crypto to evade sanctions. In January 2023, it was reported that Russia and Iran were in discussions to use a gold-backed stablecoin for trade; and Russia’s finance ministry has, since Russia's invasion of Ukraine, confirmed that Russia is exploring how to use crypto for international payments.

🇰🇷 Korea to launch market abuse surveillance system with new regulatory framework

Ahead of the implementation of its Virtual Asset User Protection Act on July 19, Korea’s Financial Supervisory Service announced last week that it would be launching a “continuous monitoring system for unfair transactions” with its local exchanges, and has also issued a set of guidelines on transaction monitoring to detect unfair trading practices.

The system seeks to standardize how sales data is being collected to better detect unusual transactions— and detection practices and standards were also benchmarked to that of the Korea Exchange (KRX). According to the release, Korea’s five major exchanges have completed system set-up, and some are in a pilot testing phase. A system for transmission of relevant data between the exchanges and the regulators has also established, and the major exchanges have set up dedicated teams and committees to support the surveillance effort.

The system is expected to come into operation with the Act on July 19. The regulator warned that unfair trading behavior would be “quickly detected” and that they would “take action.”

• 🗓️ Save your seat: Join Kraken Digital Asset Exchange’s Crystal Noe, Zodia Custody’s Sophie Bowler, and TRM Labs’ Isabella Chase and Thomas A. for a webinar about sanctions and compliance, July 30 or 31. They’ll discuss how the regulatory landscape is changing for crypto businesses, talk about common sanctions evasion techniques (and how to overcome them), and share actionable guidance for building stronger sanctions programs. Get registered here.

• 🇸🇬 Drew & Napier LLC and TRM Labs are teaming up for a panel discussion about the legal and compliance perspective on Web3 in Singapore on August 1. Request your invitation to join in on the learning, conversation, and networking here.

• 🇨🇭 Ari Redbord, Isabella Chase, and Angela Ang had the pleasure of hosting and participating in a series of incisive roundtable discussions covering fraud and financial crime, DeFi governance, and consumer protection at Elevandi’s Point Zero Forum in Zurich last week. Check out this post to see the highlights.

• 🗣️ CoinDesk's managing editor for global policy and regulation, Nikhilesh De, recently joined Ari on TRM Talks to discuss the current crypto regulatory landscape, Congress’ focus on AML and national security, and Nik’s crypto-famous courtroom sketches. Listen to the full episode here.