Regulatory Framework for Digital Assets in Bahamas, Canada, Ireland, Singapore, Switzerland, and United Kingdom: Legal Status, AML/CTF, Travel Rule Compliance, and Stable Coin Regulation.

Digital assets comprise many dimensions, and because of their unique characteristics, potentials, and negative impacts, countries have developed unique approaches to regulating digital assets. Countries are evaluated based on:

• Legal Status and Environment
• • Regulatory Framework
• • Market Surveillance and Anti-Market Manipulation
• • Registration
• • AML/CTF
• • Travel Rule Compliance
• • Stable-coin Regulation

Bahamas

Legal Status

Legally speaking, the government does not recognise cryptocurrencies or other digital assets as legal money. The Central Bank does not also recognise the word “cryptocurrency”; instead, it uses “digital assets” because it assumed that the word “token” set payment tokens apart from fiat money or legal tender.

However, there is no legal restriction on Bahamian citizens purchasing digital assets. The Government of the Bahamas intends to improve the Bahamas’ attractiveness as a well-regulated jurisdiction where well-run digital asset businesses of any size can operate, grow, and prosper in its policy white paper titled “The Future of Digital Assets in The Bahamas,” published in April 2022.

Regulatory Framework

In 2020, the Bahamas became one of the first nations to establish a legislative framework for digital assets after passing the Digital Assets and Registered Exchanges Act, which was published by the Securities Commission of The Bahamas in 2019.

This legislation outlines rules for the production and sale of digital tokens, as well as for the conduct of individuals who issue tokens and those who offer intermediate services related to token issuance.

Market surveillance and anti-market manipulation

There are currently no market surveillance requirements or anti-market manipulation rules for digital assets. However, the Bahamas has a security industry act that regulates unfair practises in the market. Therefore, it is advised that DABs comply with this legislation.

Registration

The Digital Assets and Registered Exchanges Act lays the groundwork for their regulation by defining specific categories of “crypto” enterprises (such as custodians and wallet services) and setting forth a framework for token issuances as well as for the registration and oversight of crypto exchanges. The legal requirements for cryptocurrency exchanges apply to both centralised and decentralised exchanges, as well as crypto-to-crypto and fiat-to-crypto exchanges.

AML/CTF

Various laws have been amended and adopted to help digital asset businesses understand their AML/CTF/CPF duties and to make it clear how AML/CTF/CPF requirements relate specifically to digital asset activities and registered DABs.

Following amendments to the Proceeds of Crime Act, the Anti-Terrorism Act, and the Financial Transactions and Reporting Act, digital asset businesses (DABs) were mandated to comply with these regulations as they relate to AML and CFT.

The Digital Assets and Registered Exchanges (Anti-Money Laundering, Countering the Financing of Terrorism, and Countering the Financing of Proliferation) Rules, 2022, mandate DABs to comply with the updated recommendations set out in the FATF Guidance on Virtual Assets and Virtual Asset Service Providers (“FATF 15"). Also, the Commission for the Financial and Corporate Service Providers (Anti-Money Laundering and Countering the Financing of Terrorism) Rules, 2019

Travel Rule Compliance

DABs must abide by the FATF’s Recommendation 16, and its application to virtual asset service providers (VASPs) is mentioned in the Travel Rule.

The Financial Transactions Reporting (Wire Transfers) Regulations, 2018, and the Financial Transactions Reporting (Wire Transfers) Amendment Regulations, 2022, apply to them; therefore, they must abide by them. This subject is expressly covered in Regulation 3A of the Amendment Regulations.

The Financial Transactions Reporting Regulations were modified in 2021 to take the “travel rule” into account (financial institutions and businesses dealing in digital assets must comply, i.e., validate the transaction’s originator and beneficiary for transactions above $1,000).

Stable Coin Regulation

The Commission published planned changes to DARE and the Rules in September 2022, among other things, to satisfy the demand for a supervisory framework for derivatives of crypto assets and the requirement for increased stable coin transparency.

Recommendation: The attitude of the Bahamas towards regulating digital assets has been really impressive. However, because of the threats digital assets are prone to in terms of market manipulation, it is important that the Bahamas enact a law specifically regulating digital assets to prevent market manipulation. Also, the proposed amendments to DARE should be implemented to create a stable-coin regulation.

Canada

Legal Status

Canada does not prohibit cryptocurrency. Because of its potential for speculation, digital currency is governed by the Canadian Securities Law, and the Canada Revenue Agency (CRA) views cryptocurrencies as a commodity for taxation. Canada does not recognise cryptocurrencies as legal tender, but it does let its citizens trade in these digital assets on authorised cryptocurrency exchanges.

Regulatory Framework

Most recently, the CSA and the self-regulatory organisation for the investment sector known as the Investment Sector Regulatory Organisation of Canada (“IIROC”) laid out their framework and suggested strategies for regulating this asset class. However, there are no specific rules or regulations for digital assets. The Canadian Securities Administrators have provided guidelines in the form of many staff bulletins about crypto asset trading platforms that are active in Canada but not registered with their primary authority. The cryptocurrency trading platform must pre-register with their major regulator and resolve investor protection issues in order to continue operating.

Market surveillance and anti-market manipulation

Crypto trading platforms are still working with IIROC to ascertain what the best practises look like from a functional standpoint. However, Canadian securities legislation contains general prohibitions on market manipulation, making misleading statements, and fraud. The Universal Market Integrity Rules (UMIR), which regulate trading practises in Canada and are designed to foster fair, equitable, and effective markets, are binding on IIROC members. These regulations specifically forbid unethical trading behaviour of all sorts.

Registration/Licensing

For VASPs in Canada, there are licensing and registration requirements. The criteria are based on the particular activity that is performed. For instance, if crypto asset trading platforms (CTPs) meet the criteria for marketplace or dealer platforms, they could need to register with the Investment Industry Regulatory Organisation of Canada (HIROC). Additional direction in this regard is provided by Joint CSA/IIROC Staff Notice 21–329. Also, through federal anti-money laundering legislation, which mandates registration of specific virtual currency exchange or transfer services as money services businesses, the federal government also exercises jurisdiction.

AML/CTF

The Proceeds of Crime (Money Laundering and Terrorist Financing Act) and the Proceeds of Crime (Money Laundering and Terrorist Financing Regulations) are the laws that govern crypto AML in Canada. The AML/CTF requirements that apply to businesses that deal in virtual currency are governed by these laws.

Travel rule compliance

In Canada, the Crypto Travel Rule is required. Through an amendment to the PCMLTFA (SOR/2020–112), the travel rule was expanded to cover transactions using virtual currencies, and it is further governed by FINTRAC’s travel rule guidelines for transfers of electronic monies and virtual currencies. Both laws are currently in force as of June 1, 2021.

Stable coin regulation

The Canadian Securities Administrators (CSA) have recently introduced new Pre-Registration Undertakings (PRUs) that will apply to crypto asset trading platforms (CTPs) awaiting registration under securities legislation, and cryptocurrency exchanges have needed the written consent of the CSA to offer stablecoins since 2022, when the CSA labelled stablecoins as securities and/or derivatives. The Canadian Securities Administrators (CSA) prohibits crypto asset trading platforms within the country from allowing customers to buy or deposit stablecoins or other “value-referenced crypto assets” (VRCAs) without the CSA’s prior written consent. Obtaining consent means meeting the administrators’ many due diligence requirements, including ensuring that the stable coin is fiat-backed.

Recommendation: Despite the fact that Canada’s regulations on cryptocurrencies aim to centralise the inherently decentralised technology, thorough regulations tailored for cryptocurrency exchanges, businesses, and their operations should be established.

Ireland

Legal Status

The Central Bank of Ireland, which has authority for the regulation of financial services in Ireland, has not set forth any specific financial regulatory framework for cryptocurrencies in Ireland and does not regard them as money or their equivalent.

The Central Bank issued a warning to consumers in February 2018 on the dangers of purchasing or investing in “virtual currencies” and cryptocurrencies, citing dangers such as severe price volatility and a lack of regulation. The Central Bank revised the warning in 2021 and stated that even though some virtual currency exchanges and custodian wallet providers have implemented new anti-money laundering (AML) and countering terrorism financing (CTF) supervisory regimes, this does not change the fact that virtual currencies are not currently regulated and consumers remain exposed to the risks highlighted in the 2018 warning.

In 2018, Gerry Cross, Director of Financial Regulation – Policy and Risk at the Central Bank, indicated that: “The Digital Finance Package includes a proposal for a regulation on markets in crypto-assets (MiCA), in addition to a proposal for a regulation on digital operational resilience for the financial sector, a proposal on a pilot regime for market infrastructures based on DLT, and a proposal to clarify or amend certain related financial services rules.” MiCA will replace existing national frameworks applicable to crypto assets not covered by existing EU financial services legislation. “It will establish uniform rules for crypto-asset service providers and issuers at the EU level, provide measures ensuring consumer and investor protection, and include safeguards to address potential risks to financial stability.”

Regulatory Framework

The Central Bank of Ireland has yet to issue any specific financial regulatory framework for cryptocurrencies in Ireland.

The Central Bank of Ireland continues to issue warnings about investment in crypto-assets and is very hesitant to implement its regulations or voice its opinion from a legal and regulatory perspective.

Ireland continues to rely on regulations and directives from the European Union in regulating crypto asset activities, such as the Markets in Financial Instruments Directive 2014/65/EU (MiFID), the Electronic Money Directive 2009/110/EU (E-Money Directive), and the Payment Services Directive 2015/2366/EU (PSD2), and on various EU regulations, such as the Prospectus Regulation 2017/1129/EU, the Market Abuse Regulation 506/2014/EU, and the Central Securities Depositories Regulation 909/2014 (EU), which have direct effect in Ireland.

Market surveillance and anti-market manipulation

Ireland has implemented the Market Abuse Regulation (EU 596/2014, or “MAR”), and the Market Abuse Directive on criminal sanctions for market abuse (Directive 2014/57/EU, or “CSMAD” or “MAD Il”) became applicable in Ireland and across the European Union on July 3, 2016.

Although it is unclear if this law applies to crypto assets, it states that “the new Market Abuse Regime fortifies the legal foundation supporting the role of identifying, penalising, and discouraging market abuse.” “It broadens its application to encompass a wider array of financial instruments as well as new markets, new trading platforms, and new behavioural trends.”

Ireland will also rely on MiCA, as it also introduces new rules that prohibit market abuse related to any type of crypto-asset transaction or service, including unlawful disclosure of inside information, insider trading, and actions that are likely to lead to disruption or manipulation of crypto-assets.

Registration

Cryptocurrency companies intending to operate in Ireland are required to register with the Central Bank of Ireland. The sole purpose of registration is to comply with the AML/CTF rules. Furthermore, it will depend on a case-by-case consideration of the activities to be conducted and the nature of the crypto-asset itself whether a person needs authorisation to undertake their operations involving crypto-assets in Ireland, such as sales regulation, money transmission laws, and anti-money laundering requirements. It will also involve a case-by-case study of the numerous securities laws in Ireland arising under both EU and domestic legislation.

AML/CTF

On April 23, 2021, the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021 came into force in Ireland (the Irish Act). It extends AML/CFT requirements to cover certain virtual currency exchanges and custodian wallet providers.

Travel Rule Compliance

On April 23, 2021, the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021 (the Irish Act) came into force in Ireland to take account of the FATF recommendations in addition to AMLD5.

However, the transfer of funds regulations (TFR) are the European Union’s (EU) implementation of the travel rule, which is the Financial Action Task Force’s (FATF) recommendation 16. TFR becomes instantly enforceable as law in all EU member states (of which Ireland is a member), and it stipulates that all crypto asset transfers, regardless of their amount or whether they take place domestically or across borders, must comply with the same rules.

Stable coin regulation

The regulation of stablecoins in Ireland depends on their features. Stablecoins can fall within one or more regulatory categories in Ireland, including:

Stablecoins as Virtual Assets: Any person or organisation with a physical address in Ireland who plans to issue, trade, or offer other services related to stablecoins may need to register as a virtual asset service provider with the Central Bank.

Stablecoins as e-money: An issuer of a fiat-collateralised stable coin might need e-money institution authorisation if the stable coin satisfies all of the requirements for electronic money as stated in the European Communities (Electronic Money) Regulations 2011 definition of e-money.

Stablecoins as financial instruments: If it falls within the definition of “financial instrument” as defined by the European Union (Markets in Financial Instruments) Regulation 2017 (often known as the “MiFID Regulations”), it will require a MiFID Regulations authorisation.

Asset-collateralised stablecoins under MICA: The regulation of asset-collateralised stablecoins under MICA will be effectively known when its final draught is implemented, which will be transposed into Irish law since it is not a directive.

Recommendation: Due to the nature of laws in the EU, Ireland is in a unique position where they can rely on regulations from the EU and enact directives into their laws to accommodate digital assets. MICA so far, when enacted, will be the most comprehensive cryptographic regulation, and the establishment of AMLD6, AMLAR, and AMLR also puts Ireland in a unique position. These notwithstanding, relying on regional regulations can halt innovative laws within Ireland. Therefore, Ireland should enact regulations that cover loopholes in digital assets.

Singapore

Legal Status

In Singapore, it is acceptable to trade and own cryptocurrencies. Similar rules apply to cryptocurrency and other asset classes. In Singapore, cryptocurrencies are not regarded as having the same status as money. Each cryptocurrency may be viewed as either an unregulated digital token that is just used for utility reasons or as a regulated commodity like e-money, a digital payment token (“DPT”), or a capital markets product (including securities).

Regulatory Framework

In January 2020, the Monetary Authority of Singapore (MAS) introduced the Payment Services Act (PSA), which serves as a general legal framework for both traditional and cryptocurrency exchanges. This legislation unified all payment-related services and specified licence and anti-money laundering regulations for cryptocurrency business owners.

Market surveillance and anti-market manipulation

Although there is currently no specific legislation in Singapore governing cryptocurrency or virtual asset market manipulation in general, it is likely that the Securities and Futures Act (Cap. 289) (SFA), which governs capital markets conduct, would apply to market misconduct dealing in certain types of digital tokens characterised as CMP, also known as “security tokens.”

Registration

The Payment Services Act (2019) (PSA), which governs licensing for VASPs in Singapore, must be followed. The Monetary Authority of Singapore (MAS) must receive an application from VASPs in order to grant them the necessary licence. A corporation with its registered office in Singapore sought the licence, which also comprises a standard or major payment institution licence. In May 2020, the MAS included public DPT offers or issues within the scope of the Securities and Futures Act (SFA), deeming authorised tokens to be handled as capital market products for all intents and purposes.

AML/CTF

The Monetary Authority of Singapore’s (MAS) Notice PSN02 and its Guidelines to Notice PSN02 provide an overview of Singapore’s crypto-related AML legislation. The notice establishes a framework for digital payment token service providers to combat money laundering and stop the financing of terrorism.

Travel Rule Compliance

Singapore’s Monetary Authority of Singapore (MAS) published Notice PSN02, which implements the crypto travel rule. The Guidelines to Notice PSN02, published by MAS on March 16, 2020, added more details to the notice, which has been in effect since January 28, 2020. When transmitting or receiving digital payment tokens on behalf of an originator or a beneficiary, VASPs are required to follow certain rules that are outlined in the notice.

Stable coin regulation

Singapore currently has no stable coin regulations but currently regards them as DPTs, and they are regulated by the PSA, which is insufficient. However, on November 11, 2022, the MAS published two consultation papers outlining proposed regulations to support the development of stablecoins in Singapore’s digital asset ecosystem and lower the risk of consumer harm associated with cryptocurrency trading (“Consultation Paper on Proposed Regulatory Measures for Digital Payment Token Services” and “Consultation Paper on Proposed Regulatory Approach for Stable-coin Related Activities”). The regulations specify capital and reserve needs for stable coin issuers, which are digital currencies that hold their value against fiat money or commodities like gold. This consultation came to a close in December 2022.

Recommendation: The efforts put in by the Singapore government to regulate cryptocurrencies and make new laws tailored for blockchain technology are impressive. However, such efforts should be extended to making crypto-tailored laws for market surveillance, anti-market manipulation, and stable coins.

Switzerland

Legal Status

Cryptocurrency is not prohibited in Switzerland and can be used in the country, but it is not considered legal tender. Switzerland categorises cryptocurrencies as an asset class, treating matters involving the ownership and transfer of virtual currencies in line with other asset classes like property or gold.

Regulatory framework

On August 1, 2021, the “Distributed Ledger Technology (DLT)” or “Blockchain Act” fully came into force. It is an umbrella law for digital assets in Switzerland. It amended the country’s securities law to provide a legal basis for trading cryptocurrencies, which are considered private assets by definition, by introducing the new concept of so-called “DLT-Securities” under the Swiss Code of Obligations and amending the Anti-Money Laundering Act (AMLA).

Market surveillance and anti-market manipulation

The trading of asset tokens and utility tokens may fall under the administrative provisions regarding insider trading and market manipulation of the FMIA if such trading takes place on an MTF.

Registration

There are no specific registration requirements for virtual asset service providers (VASPs). Under the Anti-Money Laundering Act (AMLA), financial intermediaries that are not members of a self-regulatory organisation require a licence from FINMA, which includes a fintech licence, an exchange licence, an investment fund licence, and a banking licence. A new licence that permits the running of a DLT trading facility (a cryptocurrency exchange for security tokens) was introduced in 2021. By enabling so-called “post-trading services” within the same business, where trading, clearing, and settlement tasks are handled by a single institution, it further recognises the distinctive characteristics of distributed technology. A securities company licence is required for any brokerage using security tokens.

AML/CTF

The Anti-Money Laundering Act (AML Act) and the Ordinance (AMLO) regulate financial intermediaries. These regulations apply to the issuer of digital assets if such assets qualify as a means of payment. FINMA updated its AML regulation in September 2021, which lowered the threshold at which businesses are mandated to verify their identity with their clients.

Travel rule compliance

The Swiss Financial Market Supervisory Authority (FINMA) introduced the Travel Rule in 2019, which took effect in 2020.

FINMA indicated that financial intermediaries controlled by FINMA must comply with traffic rules for blockchain transactions. This also applies to other financial intermediaries for AML purposes because of their affiliation with the self-regulatory organisation (SRO).

Stable coin regulation

Stablecoins are handled similarly to fungible tokens, with an emphasis on their economic function, according to FINMA standards published in 2018. Depending on the nature of the underlying assets and the rights provided to the token holder, and depending on the token qualification, the treatment may vary and different prudential standards may be necessary, respectively.

Recommendation: An extensive law that suits market surveillance and anti-market manipulation should be implemented to meet the needs of crypto assets.

United Kingdom

Legal Status

Although crypto is considered “property,” it is not regarded as a currency or legal tender in the UK, although crypto could be termed “cryptocurrency.”

Regulatory Framework

The Financial Conduct Authority (FCA) put out a policy statement called “Guidance on Cryptoassets” (PS19/22) that it regulates tokens where specified investments under the Regulated Activities Order, e-money under the E-Money Regulations, and payment services captured under the Payment Services Regulations are outside of regulation. Companies that provide services such as firms issuing or creating cryptoassets, firms marketing crypto asset products and services, firms buying or selling cryptoassets, firms holding or storing cryptoassets, financial advisers, professional advisers, investment managers, recognised investment exchanges, consumers, and consumer organisations are regulated by FCA-issued guidance.

Market surveillance and anti-market manipulation

The Criminal Justice Act of 1993 (CJA) and the UK Market Abuse Regulation (UK MAR) in the UK both address market abuse. Any claim would depend on the cryptocurrency meeting the definition of a security. According to FCA PS19/22: Guidance on Cryptoassets, cryptocurrencies can be viewed as security tokens. This may be interpreted to suggest that such an asset could qualify as a debt security under the CJA. If it could be traded on the capital market, it would also qualify as a transferable security and fit the definition of a security under the UK MAR. Both of these events would indicate that a claim for market abuse had merit.

Additionally, the planned crypto-asset market abuse regime’s purview will be reduced. In contrast to UK MAR, which applies to financial instruments traded on UK and EU trading platforms, the rule would only apply to cryptoassets traded on UK crypto asset trading venues.

Registration

Firms must obtain FCA authorisation before engaging in specific crypto-asset activities related to cryptoassets classified as financial instruments or electronic money and must comply with the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).

AML/CTF

The UK transposed the 5th AMLD into domestic law called the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017). Cryptocurrency businesses are deemed “obliged entities”. The FCA is the supervisory body charged with ensuring AML/CTF compliance for businesses carrying out various cryptocurrency activities.

The FCA makes it clear that businesses operating crypto-asset automated teller machines and peer-to-peer providers are in scope. Also, VASPs should start preparing for the Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022, which extend Travel Rule obligations to UK VASPs.

Travel Rule Compliance

Previously, travel rules were regulated by the 2017 Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations. However, on July 21, 2022, the Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022 were passed into law in the UK and will enter into force on September 1st, 2023. extended travel rule obligations to UK VASPs.

Stable coin regulation

In an April 2022 answer to its January 2021 survey, HMT suggested bringing stablecoins under the regulatory purview of the UK. This will mostly be accomplished by making changes to the current regulatory frameworks for e-money and payment systems to include payment systems and service providers using stablecoins. Only fiat-backed stablecoins will be covered by the framework. Additionally, when certain stablecoins are used as a form of payment, the Financial Services and Markets Bill, which was presented to Parliament in July 2022, brings activities that facilitate their usage within the regulatory purview.

The FCA and BoE would be given proper authority over stable coin issuers and other organisations, including wallet providers and customer-facing organisations. Payment networks and systemic stablecoins will be under the Bank of England’s (BoE) supervision.

The same rules that apply to commercial bank money must be met by stablecoins used in systemic payment chains. They must also be backed by high-quality, liquid assets (including central bank reserves) and, where necessary, loss-absorbing capital.

Recommendation: The steps taken by the UK in regulating the activities of VASPs and crypto issuers are impressive. However, a lot of pending bills that are specifically made for crypto assets should be enacted sooner to suit the growing needs of consumers.

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