Crypto regulation around the world — May 2018

In this report, we’re focusing on crypto-regulation imposed by international governmental agencies as it stands in May 2018, at press time.

10 min readMay 25, 2018

A version of this article first appeared on Element Group’s blog. Subscribe to our blog or follow us on Twitter for all the latest news, research, and op-eds from The Element Group.

If 2017 was dubbed the year of the ICO, then 2018 may well already be coined the year of regulation. There has been a notable trend this year in a number of countries towards a political consensus on crypto. Could this change mean that regulatory bodies are finally ready to take decentralization (and all its auxiliaries) seriously?

The landscape is ever-changing, but we’re taking a fine-tooth comb to global political sentiments around cryptocurrency, by investigating countries that have been in the news for legislation of late and taking note of their current status.

The Countries and Their Regulations

1 USA

All eyes have been on the United States this year when it comes to cryptocurrency regulation. Any changes within this country’s regulatory framework could have an immense knock-on effect on the global market. Up until now, any new regulation has varied from state to state — for example, a small number of states have been adding legislature to legalize crypto for tax purposes. Such disparity makes national US regulation and overall compliance difficult to maintain with complete clarity.

Meanwhile, the SEC, the CFTC, the FEDs, and now the IRS all have their differing opinions to give. Regulation can vary about whether tokens are considered a utility or security (ETH seemed to be the latest to go under the microscope), and of course whether or not non-accredited investors should participate in token sales.

Will we see a mass shift towards security tokenage by the end of this year? The jury is still out on that one, but as US brokers are taking measures to comply with regulatory frameworks, there is a general consensus on one aspect of the token sale in the US, and that is: ‘don’t mention the exchange’.

And as far as foreign policy is concerned? President Donald Trump made quite the statement on behalf of the United States earlier in the year when he called for a ban on all stateside purchases of the new Venezuelan cryptocurrency ‘Petro’. But even in the face of news like this, it has been an exciting few months for the industry. For the first time, the US Congress included cryptocurrencies in its Annual Economic Report.

Opinions from Congress were a mixed bag towards crypto and blockchain development following the G20 report, and they probably will continue that way. But whether or not everyone is a fan, one of the top priorities for the US government, as in most countries going forward, is the incorporation of AML and CFT regulations into the market.

2 China

The crypto-world was shocked back in September 2017 when China implemented a blanket ban on all cryptocurrency trading and domestic exchanges. The industry feared the continued Chinese governmental boycott of virtual currencies would have a detrimental effect globally, but the market bounced back regardless.

Blockchain technology and innovation remain hugely popular in China. Many cryptocurrency fans are not fazed by the China’s firewall; Ripple has stated that it is “very confident” about cryptocurrency re-entering the Chinese market by the end of this year.

So is China now re-considering its all-out ban and moving towards more stringent crypto regulation as an alternative? Or was it perhaps a ruse all along, where China had never really intended to fully discount itself from the crypto-space long-term? It’s impossible to know; with China, it really is just a matter of wait and see.

3 Japan

Japan has been through the wringer in terms of cryptocurrency exchange scams, but it still remains second globally in terms of crypto-trade volume. Regulatory bodies have been in action since the Mt. Gox fiasco in 2014 but the area still needs some serious work — as proved by the Coincheck heist.

While exchange regulations are increasingly tightening on both sides to avoid any more ‘mishaps’, the Japanese government went against the global grain recently by announcing its plans to legalize ICOs and utilize token sales for positive national gains. With such immense crypto-popularity that continues to grow, Japan is certainly an example of a country that is making huge leaps towards tokenization.

4 South Korea

South Korea has been in the news in the last few months as cryptocurrency regulation turned from favorable legalization in the summer to much more stringent regulation by Christmas. Since January, the South Korean government has been reassessing its position and the crypto-world has been waiting with bated breath for updates.

South Korea’s FTC (Fair Trade Commission) has demanded that crypto brokers modify their contracts to clamp down on fraud. There are also reports of a pending taxation framework set for June 2018. A newly appointed Financial Supervisory Service governor has stated though, that he was in favor of more flexible lawmaking with regard to crypto, so who knows?

One thing’s for sure, such a small population has quite a big speculative impact on the crypto-trade market (third only to the US and Japan in trading numbers), so in terms of regulation, it’s an important one to watch for 2018.

5 Russia

Russia’s President Vladimir Putin set the date for bringing cryptocurrency regulations into effect as early as July 1st. The State Duma (the country’s main legislative body) released a report as a result of Putin’s statement: “On Digital Financial Assets”. Adding to regulations set in place in January by the financial ministry indicating the importance of KYC, the report outlined a move towards AML and CFT laws in line with US regulations.

The government responded with a request for more detail on tax obligations to be included in the report. Also, on the back of this report, Russia has put in place an unprecedented set of ICO regulations, a known conversation haven for the crypto community, leaving many Russian-based ICO organizers strongly considering their next steps.

6 EU (+Italy/ Germany/ France)

Earlier in the year the EU had stated that it intended to introduce measures to regulate the crypto market, but there hadn’t been a date set yet. It seems that bitcoin is now to be legitimized as EU jurisdiction requires that cryptocurrency exchanges go through the same KYC processes as traditional banks.

We must remember, however, that the EU did ban Estonia and any other member state from creating their own cryptocurrency way back in 2017, and several EU states have lately imposed stricter supervision on crypto derivatives. It’s hard to know right now exactly where the European Union will go with regards to further legislation, but within the EU, different countries are looking at crypto-regulation from their various points of view.

In February, the Italian Ministry of Economy and Finance published a ministerial decree with a proposed cryptocurrency legal framework (not yet in effect), while Germany’s feeling is that any regulation on cryptocurrency should be global. France’s Finance Minister has asserted his enthusiasm for cryptocurrency and, like Italy, plans to create a legal framework around offerings, Recent efforts to blacklist 15 French crypto companies might contradict such apparent interest within these countries.

The question is, just how influential can or will these European powerhouses, along with the UK, be on crypto legislation in the EU? European exchanges are getting more overall clarity within crypto regulation. Now let’s see what happens with the rest of the industry.

7 UK

At the beginning of March, there were warnings of a regulatory crackdown, and the announcement of a UK Cryptocurrency Task Force showed that the Bank of England is definitely taking cryptocurrency seriously. The Minister for Finance in the UK has expressed that he wants to fight anarchy and ensure methods are in place to combat illicit activities in decentralized technology.

While citing plans to fight market volatility and ensure greater controls, the use of blockchain technology at the core of the British financial system has also been hinted at by the Finance Minister. The UK City Minister John Glen further pointed to the potential for a burgeoning crypto market in the UK when given the right constraints.

As with the rest of Europe, the CryptoUK Trade Association has been asking for more clarity from MPs on regulation going forward.

8 India

Crypto-trading volume in India plummeted initially as the government began an ever-increasing crack-down on exchanges. In fact, two exchanges stopped operating in advance of these strong measures. The main action from these officials seems to be in finding a way to tax ‘bigger’ crypto-traders effectively, with warnings having been given to some before Christmas that their assets would be looked at.

India’s Central Bank (RBI) also announced that they would no longer provide services to anyone dealing in crypto, leading to a Twitter frenzy. But many in the industry are fighting back. Traders are finding ways to navigate prohibition through means such as crypto-to-crypto trade.

General governmental consensus is clear, that with crypto-trading continuing to be so popular in India, regulations and a proper legal framework are a must going forward.

9 Indonesia

Social media seemed to let the cat out of the bag in Indonesia in December 2017, as local authorities became indirectly aware of the ‘crypto haven’ — mainly for expats and tourists — that their country (Bali specifically) had recently become. Central bank officials and police began to investigate the trend and Bank Indonesia has said that they will be looking more seriously into crypto regulation that will include AML and CFT laws.

10 Saudi Arabia

Saudi Arabia is following suit with global trends as Capital Markets Authority Mohammed El Kuwaiz stated that the kingdom is exploring crypto regulation, but the rules may not be as rigid as other countries. In fact, the country is actively looking at ways to implement blockchain technologies in Islamic finances. The recently promoted Crown Prince is reportedly in favor or cryptocurrency and its potential benefits.

The country has been following developments in the emerging cryptocurrency market with great interest, and officials have stated that a crypto ban is not likely. We’re also wondering about rumored plans for trade in oil-backed cryptocurrencies.

11 Australia

For some time, cryptocurrency in Australia was fairly unregulated, but as crypto-trading becomes more and more popular, recent measures from the AUSTRAC (Australian Transaction and Analysis Centre) to update their AML laws shows ‘the land down under’ to be committed to taking digital currencies more seriously, perhaps seeing the need for rules as more of an inevitability than anything else.

The latest Australian regulatory guidelines indicate, in keeping with the US and other countries, much stricter parameters for exchanges operating in the crypto-space from now on.

12 Turkey

Where previously, Turkish officials and religious authorities had taken a harsh stance against Bitcoin, in February 2018 Turkey’s Deputy Prime Minister Mehmet Simsek confirmed that the country would be releasing a national currency. But while cryptocurrency remains legal in Turkey, former Industry Minister Ahmet Kenan Tanrikulu has also called for a clearer legal framework going forward.

Given current debates over Turkey’s bid to become a member of the European Union, one would have to wonder what would happen if Turkey did eventually join. With the EU already having made its position clear regarding the creation of member state cryptocurrencies, where would that leave this potential currency? Especially when we consider the strong interest that the Turkish people have already shown in crypto.

13 South Africa

While cryptocurrency in South Africa remains largely unregulated, taxation laws do apply. For the moment, the SARB (South African Reserve Bank) whitepaper from 2014 still stands, but the country is actively considering further regulation of crypto. The SARB recently initiated the setup of a self-regulatory organization, and South Africa may even be open to the use of distributed ledger technologies in their banking system in the near future.

14 Thailand

With a brand new regulatory framework that just came into effect (a first draft was circulated as early as March), Thailand is proving that it is not pulling any punches when it comes to cryptocurrency and exchange governance.

Earlier in the year, Thailand had been seen to be embracing cryptocurrency in its financial industry with the recent announcement of 14 Thai banks taking part in a blockchain technology initiative. The governor of the Central Bank of Thailand who previously asked banks to stay away from cryptocurrency also seemed to be getting on board. But he did also state that all of these developments would come along with regulations as necessary.

Two laws were recently passed covering KYC and taxation related to cryptocurrencies and ICOs, proving that its military government means business when it comes to legislation. The country will likely be implementing a VAT and capital gains tax sooner rather than later, and they are currently looking at viable ways to enable the seizure of cryptoassets if they are deemed to be used for illegal purposes.

15 Venezuela

Venezuela’s relationship with cryptocurrency has been tumultuous at best — with some seeing crypto as a tool for emancipation from the country’s decade-long economic depression — while others are at odds with Petro cryptocurrency, believing it to be unconstitutional. And Trump’s ban order on any US purchase of Petro only added to the fire.

The country has more recently approved the decree of the use of cryptocurrencies, although it has been harsher on some crypto exchanges. Venezuela, as a result of its subsidized electricity, has also become a mining haven in recent years. It’s too volatile just yet to predict the what will happen with decentralization in this nation — but watch this space.

Conclusion:

As of May 2018, it would be nigh on impossible to predict the exact direction that regulation will go, nationally or globally. There is one common agenda in the coming months for both the crypto-industry and governmental bodies though, and that is to gain clarity around how to handle bad actors in the space.

Efforts are being made by international governments to harness the full potential of blockchain technology and capture its value, but first, they want some protocol. The question right now might be whether those frameworks could continue to be handled on a national scale or would they be expanded to incorporate a global ruling for all?

Will 2018 be remembered as the year of crypto-regulation in the blockchain space, for better or for worse? Who knows. One thing is for sure, KYC, AML, and CFT are some acronyms that will be ringing in crypto-traders’ ears long after 2018 is over — in much the same way that ICO, FUD, and BTFD made their mark in crypto-land in 2017.