Regulatory Roundup #1

Weekly Summary

Stablecoins have been hogging the spotlight like an ageing rock band on a farewell tour. Kyrgyz‑issued A7A5 smashed through the $40 billion transfer mark, prompting OFAC and Brussels to reach for the sanctions manual, while the ECB fretted publicly that 99 % of the sector’s float is tied to the good old greenback. Meanwhile, ESMA fired off twin MiCA Q&As that box in custody shenanigans and re-hypothecation of client assets for a firm's benefit.

Over in D.C., the SEC finally stopped pretending cash settlement was a virtue and blessed in‑kind ETF creations – with fatter options limits thrown in for good measure – and Senator Lummis wants your future mortgage secured by bitcoin. Asia kept the pace: Hong Kong pushed its stablecoin licence timetable into 2026, Indonesia doubled crypto taxes, and South Korea’s central bank carved out a crypto‑risk unit. Even Jordan joined the party with a brand‑new virtual assets law.

🔦Spotlight

Rouble-Backed, Sanction-Packed: A7A5 and the Dark Side of the Stablecoin Boom

It may sound like a knock-off Star Wars bot, but a quiet Kyrgyz‑registered token with the charisma of a tax form has suddenly become the Kremlin’s favourite side‑door to the global payments system. A7A5, a rouble‑backed stablecoin launched only in January, has processed more than $40 billion and is now shifting over $1 billion every day - volumes that would make several mid‑tier banks blush. Investigators at Elliptic and TRM Labs say July alone delivered a hockey‑stick surge, helped by Russian importers scrambling for SWIFT‑free routes to pay Chinese suppliers. (Reuters, Elliptic)

The token’s plumbing is revealing. A7A5 is issued by Old Vector LLC in Bishkek yet ultimately traces back to Promsvyazbank – Moscow’s defence‑sector lender - and payments outfit A7 LLC. Both names sit on Western sanctions lists, yet they pitched A7A5 as a “frictionless cross‑border utility” when it debuted. Each coin is supposedly backed 1:1 by rouble deposits, with holders promised a 50 per cent slice of the interest income - a perk most stablecoins would file under “things our lawyers vetoed”.

Elliptic’s latest dive shows market‑cap tripling to $521 million in a fortnight, fuelled by the issuer ladling $100 million in fresh USDT liquidity into its own DEX so that roubles can be flipped into harder currency in minutes. More than 14,000 wallets now hold the token, while on‑chain interest “dividends” worth $4 million have already hit user accounts. In short: A7A5 has evolved from boutique workaround to industrial‑scale sluice gate in six months.

Regulators are unsurprisingly irritated. When the US Secret Service kneecapped sanctioned exchange Garantex in March, its reserves - including a fat stack of A7A5 - resurfaced on Kyrgyz‑incorporated clone Grinex. CoinDesk’s forensics and TRM’s blog suggest the same operators are quietly rebuilding infrastructure across Bishkek office blocks and Telegram chats, stitching together a network of shell VASPs that share phone numbers, founders and, inconveniently, sanctions risk. (CoinDesk, TRM Labs)

Washington and Brussels are circling. OFAC officials told Reuters they are reviewing whether to drop A7 LLC and Old Vector onto the SDN list, while the EU’s 14th Russia sanctions package, adopted on 24 June, explicitly flags rouble‑linked crypto assets as “high risk” and tightens reporting for EU VASPs. If the two blocs coordinate, A7A5’s fiat off‑ramps could slam shut within months - but history suggests the token’s architects already have Plan C.

Meanwhile analysts underline the token’s real‑world side‑effects: TRM Labs tracks A7A5 flows into Kyrgyz and Kazakh freight forwarders moving dual‑use chips, drones and radar parts to Russia, while Chinese exports of such kit to Central Asia climbed 64 % last year. In other words, every on‑chain dividend from A7A5 might be underwriting a shipment of silicon or UAVs headed for the front.

(Reuters, TRM Labs)

🌎 Global Developments

🇺🇸 United States

The SEC has green-lit in-kind creations and redemptions for crypto exchange-traded products, abandoning its cash-only model. Release 2025-101 (29 July 2025) allows authorised participants to deliver bitcoin, ether and other approved tokens directly to ETF custodians, a move the agency says will “enhance market efficiency and investor outcomes”. The same order lifts position and exercise limits for options on the largest spot-BTC ETPs to the generic ceiling of 250 000 contracts and authorises FLEX options listings. Issuers argue the twin changes will tighten spreads and deepen hedging liquidity across existing and future spot-crypto ETFs. (SEC, Cointelegraph, The Block)

Crypto meets the 30‑year fixed: Senator Cynthia Lummis has introduced the Home Financing Innovation Act, directing Fannie Mae and Freddie Mac to study, and potentially pilot, mortgages collateralised with digital assets. Filed on 24 July, the bill gives the FHFA 18 months to craft eligibility rules and could open secondary‑market support for loans where borrowers post properly‑custodied bitcoin or ether as down‑payment collateral. (Cointelegraph, The Block)

🇪🇺 European Union

ECB waves the red flag on USD stablecoins. In a blog post titled “From hype to hazard” (28 July 2025), ECB adviser Jürgen Schaaf warns that dollar‑pegged stablecoins now account for 99 % of global supply and could erode monetary sovereignty if they gain mainstream traction in Europe. The piece flags contagion risks from a disorderly collapse, notes that euro‑stablecoins total barely €350 million, and argues a retail digital euro plus tight MiCA supervision are “strategic necessities” to stop Europe sleepwalking into dollarisation. (ECB Blog, FT summary)

ESMA’s latest MiCA clarifications

Q&A 2607 (18 July 2025) focuses on custody. ESMA confirms that crypto‑asset service providers must segregate client assets under Article 70 and may not rehypothecate, stake or lend those coins for their own benefit. Pre‑funding client trades with firm‑owned crypto is only acceptable if the exposure is covered immediately and transparently booked. (ESMA 2607)

Q&A 2608 (29 July 2025) tackles pre‑funding with clients’ own crypto. ESMA says this constitutes sub‑custody and is only permissible where the third‑party holder is MiCA‑authorised to provide custody (Article 75(9)) and clients have been duly informed. Moving coins to a third‑party wallet purely to settle an already‑executed order is not sub‑custody, but anything broader triggers the strict Article 70/75 segregation regime. (ESMA 2608)

First MiCA Asset Manager

CoinShares Asset Management has become the first continental European regulated asset manager to win an EU‑wide MiCA licence, approved by France’s AMF on 23 July 2025. The nod lets CoinShares passport crypto‑fund and staking products across the bloc. (CoinDesk, GlobeNewswire)

MiCA Authorisations Update (per ESMA CASP Register)

• 🇳🇱 Finst B.V. – 24/07/2025

• 🇩🇪 Traders Place GmbH & Co. KGaA – 21/07/2025

• 🇫🇷 CoinShares Asset Management – 17/07/2025

🇰🇷 South Korea

South Korea’s central bank, the Bank of Korea, has set up a dedicated “Virtual Asset Research and Management” division inside its Financial Stability Department to monitor systemic risks from crypto markets and steer policy on stablecoins and a future CBDC. Announced on 25 July, the reorganisation comes as Phase 2 of the Virtual Asset User Protection Act heads to the National Assembly later this year. (Cointelegraph, The Block)

🇭🇰 Hong Kong

Hong Kong’s HKMA says the first licences for fiat‑referenced stablecoin issuers are unlikely to be granted until early 2026, even though the enabling law kicks in on 1 August 2025. Deputy Chief Executive Darryl Chan told reporters on 29 July that only “a small handful” of applicants will clear the bar and urged promoters to “avoid unrealistic expectations”. Firms keen on the fast lane must lodge preliminary applications by 31 August to receive feedback. (reuters.com, asiafinancial.com)

The HKMA added that most suitors are pitching HK‑ or US‑dollar tokens; those eyeing offshore‑yuan coins will face extra questions on reserve assets and use‑case. A detailed licensing note lands next week, setting out capital and redemption rules ahead of the formal application window. (hkma.gov.hk)

🇮🇩 Indonesia

Indonesia will double its domestic crypto transaction tax to 0.21 % from 1 August 2025, while trades on overseas platforms will face a hefty 1 % levy (up from 0.2 %). The finance ministry’s rule‑book also scraps buyer VAT but doubles VAT on crypto mining to 2.2 %. Officials say the shake‑up reflects crypto’s shift from “commodity” to “financial asset”, and Binance‑backed Tokocrypto is lobbying for a one‑month grace period to re‑tool systems. (Reuters)

🇯🇴 Jordan

Jordan has enacted its first comprehensive legal framework for virtual assets, published in the Official Gazette on 24 July 2025. The regulation tasks the Jordan Securities Commission with licensing exchanges, custodians and token issuers, sets capital requirements starting at JOD 1 million (≈ US$1.4 m) and imposes strict AML/KYC checks aligned with FATF standards. Officials say the law aims to attract fintech investment while keeping consumer protection “non‑negotiable”. (Unlock‑bc)

🔎 Things to Watch

• 🏛️ Before August Recess – US Senate progress on CLARITY.

Coming into view:

• OECD Crypto-Asset Reporting Framework (CARF) implementation timeline across EU and G20 nations ahead of 2026 start
• Further FCA consultations on the UK crypto regime

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