Crypto Asset Reporting Framework Explained

Transcript

welcome back for the afternoon session of the web3 banking Symposium today my name is Benedict Orbin and I'll be the host for you in the afternoon as well I'm the board member of the crypto Valley Association and proud to represent also the board here on stage um first of all before we go into the first keynote I just want to make sure for those of you who are not from lug or not very often here in Lugano who has heard of the Satoshi statue here in Lugano who has heard about it okay not many ah right onethird so there is an amazing Bitcoin uh Satoshi statue created by the Satoshi

Gallery it was actually published and brought to life last year in October at planb conference and guess what it's literally around the corner so if you walk to the lake and turn left you'll actually find it but it's actually also there is a pointer on the Google Map so go check it out it's very interesting if you look at from the side it's a person sitting and on his laptop if you look it from the front you actually see true and you and Satoshi himself disappears so that was just a little thing it's a very nice thing and first one here in in Lugano so go and check it out if you need take an afternoon walk but let's start our afternoon session and I can

bring you amazing keynote brought to you by a person from PWC the topic is crypto asset reporting framework cough navigating the crypto reporting obligations uh Matias stably will will be speaking to you in his keynote and just to mention PWC is and has been a corporate member of the crypto Valley Association since years and this session shares valuable tangible action items for all of you and for all of those who are obligated to follow the carve so with no further waiting let me welcome Matas on stage please put your hands

together thank you thank you very much good afternoon everybody so happy to talk now in 20 minutes about everything you need to know about carf it's a bit a challenge so let's focus on a few cornerstones which are really important when I designed the presentation here I had a bit the feeling well okay now we have the full morning where we have very interesting enthusiastic speeches about the future in the crypto space and now comes the The Tech Guy or the the technical guy the legal guy and talks about hey you have to do a reporting what a nice start in the afternoon but that's the reality

and transparency also has some benefits it gives trust and it can also help to further grow an area so where are we coming from what is this car of this crypto asset reporting framework um what what we need to know is we need to look back in the past and when we look back a few years maybe some of you remember the situation we had with the Swiss banking place and the US government the money which is not being taxed the Swiss Banks who have maybe maybe not supported us taxpayers to hide the money so that's basically where the whole story started right and then the

US had the idea hey we want to have the information dear Banks you have to provide us all the information about your account holders because you want to know who has money where in order we can tax it so that was organized then on the osad level some countries also had this idea well if the us is getting all those information to increase the tax revenue why we are not doing the same because also we think that people are not disclosing everything they should do so what they did they basically copy pasted the fatka regime from the US guys translated into something more Global more Broad and

created the automatic exchange of information and the automatic exchange of information was targeting Banks insurance companies asset managers they all need to report on traditional Financial products some point a few years ago the US realized well there is something new something with crypto and people are not putting that in the tax declaration so we need to change that so they came up with the crypto reporting framework and as we can see on the map here above there are quite a few countries already joining the club in implementing it and it's a clear goal of the USD to roll this out worldwide it has been declared as an international standard which means

the countries should and have to implement this now what is a crypto asset service provider well the definition we can read up here sounds quite simple it is an entity or an individual that as a business provides a service effectuating and exchange transactions on behalf of a customer client by acting as a counterparty intermediary or making available a trading platform so that sounds quite quite easy quite handy but the devil is in the detail and usually if I try to explain who needs now to do a reporting I always

say we need to distinguish between two things and that's the left hand side and the right hand side on the slide if you first focus on the left side we have someone that could be an entity or an individual and they offer a service and this service helps a customer to exchange transactions this could be acting as a broker as an agent as an intermediary operating ATM those are all activities would fall into that space that's kind of okay we can handle that we can understand that the more complicated side is the trading platform because there at uscd just said well

it's basically everything which allows a user to trade can be a software it can be a a tool it's not clearly defined what it is so it's clear if I'm operating a platform where clients can trade I am a crypted service provider but we also have the defi space how does it work there the current understanding of DCd is well if we have no one who is actually in control of the platform we still have somewhere someone acting as a kind of a gatekeeper making that platform available for a user a client offering it as a service and that

person should be the reporting person that's quite interesting in the interpretation and it's even more interesting if you take it into the more broader view with the us where we currently have the discussion that they want to exclude the defi space so it's interesting to see now what is the usad doing and even more interesting how will defi be defined because at the moment there is no official definition in terms of the crypto reporting framework what falls under a platform and what not so let's assume we have now considered yes we might be affected by it we might be a crypto service provider

but we are not only resident in Switzerland we might have a branch in another country we might have a branch in the US we might have a branch in Dubai wherever now there are Nexus rules and those rules are quite tricky and quite mean somehow let's take one example here could be we have the entity a in jurisdiction a not implementing carve you might have a smaller branch in Switzerland implementing carve the result is that the Swiss Branch will have to report all transactions also from entity a that can be quite cumbersome so that's something which needs to be

analyzed and should be taken into consideration once we have agreed on that we have a reporting obligation it's the question what should we report yes it's called crypto asset reporting framework but what the heck is a crypto asset in the definition of DOD we can take this wonderful definition up there a digital representation of a value that relies on cryptographically secure distributed leer or similar technology I think the good thing today is I don't need to explain to you what this is right sometimes I need to start with it definition explanation what is that at

all but still it gives some questions because the US took a very broad definition and then they said well okay it might be a bit broad we don't need everything because we also have to the traditional common reporting standard and we amending that as well because we including Central Bank digital currencies there and specified electronic money products will be reported under the old regime CRS automatic exchange of information so we exclude that from carf and we also have something else which well if something is not used for payment and not for investment purpose why should we reported why is the tax administration

interested in that so let's exclude it as well okay the rules were written like this and then people started asking question well how do I need to understand that who gives me definition on what is now not needed for payment or investment purpose is an nft used for invest investment or payment purpose is a token I can use on a computer game something I could theoretically use for payment or investment purpose those are quite interesting questions at the moment for which we don't have an answer yet I had a pleasure to meet last week a representative of the usad who was writing the standard and they also have

now realized yes we need to give more guidance and they promised to issue more guidance until summer so let's see what they come up with I hope they will bring something because if you look into the current rules or maybe more hints how we can understand it it really doesn't solve the problem and sometimes one could say well why are you talking about that it's it's a no-brainer but I think if we have listened this morning to other speeches and if we see how is how the market will grow of tokenization we will see that this carve thing will get

huge and it's also the view of the OCD that potentially this will replace the CRS reporting because if we go in time and have more and more tokenized funds and derates we will see much more reporting in car rules and therefore the definition is now something in this third category or not is very important because that would drastically reduce or make drastically bigger the reporting amount so we really hope to get more clarity on that now we have understand now who might have a reporting obligation what

type of assets need to be reported and some of you are representatives of banks who already need to do reporting under CRS right we are used to repor bought the year end value M St has five Franks on the bank account and received one Swiss frank dividend very nice that's report that year end now under the C rule we are changing the logic we are reporting on a transactional basis and we need to report that on the type of transactions so we need to report M did a crypto to sorry a crypto asset to Fiat

conversion or we had crypto asset one into crypto asset 2 we need to calculate the fair market value another very interesting question how do I bring in the fair market value in certain transactions I don't have an official answer yet I have some ideas but not 100% Clarity then retail payment transaction if I'm going to buy a new car with crypto asset it needs to be reported something we which would have never been reported under the serus rule if I'm going to buy a car with Swiss Franks who's going to report that no one but if I buy it with crypto assets it's going to be reported interesting airdrop staking income will also be

reported so that gives the tax administration a complete new granularity of information which they will use to introduce new taxation models for the future we also had this in the morning the question was well is technology following the law or is law following the technology in the tax base it's very clear taxation is always 5 10 years behind the tax transation they see something like oh we might text something we don't know why let's get some information to have an understanding and for me that's clearly something in this area so we see that the reporting is very granular and that's difficult because

because we need to collect that data we need to be able to transform it to work with it and to report it to the tax administration it's a complete different ball game to compare to a CRS or a fatka reporting and for those of you who have the pleasure to become a crypto service provider and might have not yet had the pleasure to be an fi a reporting fi on the old rules you need to do due diligence you need to document the users with a so-called self-certification and we now see in Switzerland the law has now finally been drafted it's now in

the Parliament and there has been a very not so nice surprise in the final version which is now going to the parliament in the draft it was not in there it's if you have a pre-existing user so if I today will be user of a platform of a service provider as of next year when the rules going live I will be regarded as a preexisting user because I was a user before 2026 I would need to be documented within one year if I do not provide a Sal certification you need to block me that's something completely new we have never seen that in fatka or in

CS if we talk about pre-existing old clients old users and that's for me kind of a negative surprise and something I don't really understand yet because I think here Switzerland is going further than what uscd is requiring which is something I really don't understand why but nevertheless those are the rules they need to go live January next year every client which gets onboarded as per one January 2026 needs to be properly documented now what's to be done at the moment what do we see what are others doing what are we supporting clients with what should

be the key takeaway from today I think the most important point is the first one up there Gap analysis you need to understand where do you stand at the moment are you affected by this new regulation yes or no if yes to which extent and it's sometimes not very easy to say yes you are a new reporting entity it really depends on the details of a service offering so that should be really analyzed now because after that the whole wheel needs to go through we need to discuss about how do we work with the data how do we get the

structural information of all those transactions how do we get a fair market value how do we bundle them how do we put them into different baskets we also need to think about how do we work with the client data how do we identify the client how do we store that data how do we work with changing circumstance maybe today I'm living in Switzerland I don't need to be reported but tomorrow I could move to Germany if I have a Swiss crypto service provider they need to report me they need to realize that those processes need to be implemented we need to think about technology and also data governance but all those discussions can only start at

the point I know whether I'm affected or not that's why I think the key takeway today is look into those rules look into the regulation ask yourself could it be that we might be affected by it because what is really not nice in this regulation is that we need to report transactionally which means as a January next year I need to start collect the transactions I cannot end of year start to look into my system and say a yeah he has 0 point whatever Bitcoin on the account that would be too late now what's also important you need to think about do I have different

locations to cover how do I understand what might be the differences between Switzerland and Germany or Italy in Switzerland or Dubai in Switzerland because sometimes the definitions they might be different in particular also for what type of crypto assets are required and somehow you need to collect that information and in the end you need to develop a process which includes client identification risk management due diligence reporting kyc we have now now also the the the point that you need to train the staff

you need to have proper due diligence if you are already now a traditional bank that might be just an additional add-on in the reporting space a very complex add-on to be honest also some combo stones with the documentation but it's doable if you have not done yet the reporting it's a complete new ball game I hope I was able to give you a first impression in what is carf and I also hope I did not make your afternoon bad and still I'm happy that so many people sitting here after a great lunch and thank you very much for your time and a great afternoon