BetterNews #2: Crypto Summer
Sep 5, 2018 · 8 min read
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We decided to dedicate this issue to guidance related to cryptocurrencies and ICOs by different regulators that was announced during the summer.

The issue includes everything that one would expect from a hot season, starting from analysis of impact of digital assets on monetary policies by EU regulators, comprehensive tax treatment of cryptocurrency by Luxembourg authorities, new regulatory framework in Malta, offshore guidance on ICOs from Jersey, the ongoing debate on security vs utility and protection of the investors in North America, recommendations to banks and other financial institutions working with crypto related projects in UK, as well as updates from Saudi Arabia, Poland and Russia.

European Union

In July European Parliament issued in-depth analysis titled “Virtual currencies and central banks monetary policy: challenges ahead”.

According to the document virtual currencies are a contemporary form of private money. As with other innovations, virtual currencies present a challenge to financial regulators, in particular because of their anonymity and cross-border character.

Virtual currencies should be considered by regulators like any other financial instrument, proportionally to their market importance, complexity and associated risks.

The report notes that crypto-assets may have a greater impact in countries subject to sanctions (such as Venezuela’s sovereign virtual currency, el “petro”).

The report also stated that crypto-assets do not challenge the monetary dominance of major central banks and fiat currencies.


On 26 July 2018, the Luxembourg Tax Authorities published a Circular on specific tax aspects of virtual currencies.

The main conclusions of the Circular are:

  • virtual currencies do not constitute real currencies, therefore tax accounting cannot be prepared and taxable income cannot be reported in a virtual currency;
  • for the purposes of corporate income tax, municipal business tax and net worth tax, virtual currencies constitute intangible assets;
  • for accounting purposes, the general accounting principles should apply: income generated upon virtual currency disposal must be determined on the basis of the exchange rate on the day when the income is credited at the taxpayer’s account, while an expenditure must be converted at the rate on the day of its occurrence;
  • the use of virtual currency for payment does not affect the tax nature of income;
  • the tax regime and applicable tax rate in respect of virtual currency transactions depends on the nature of the income, e.g. Bitcoin income derived by a corporation is business income by default;
  • the virtual currency are recognized as a taxable asset for net wealth tax purposes (applicable only for corporate taxpayers, to the attention of ICO projects).

Earlier the tax authorities also issued a Circular n°787 dated 11 June 2018, which confirmed the position undertaken by the The European Court of Justice (ECJ) in its court ruling Hedqvist of 22 October 2015 (C-264/14). It is worth mentioning that ECJ’s decision was related to VAT treatment and limited to exchange transactions of Bitcoin for fiat currency and vice versa.


Malta became the first jurisdiction (according to the statements of Maltese government officials) in the world to have laws which comprehensively cover:

  • establishment of a regulatory authority, called the Malta Digital Innovation Authority (MDIA), which will be responsible for supervision and certification of DLT platforms and applications (technology arrangements under the MDIA Act);
  • setting-up of tools for registration and certification of technology arrangements which voluntarily decide to register themselves as such (Innovative Technology Arrangements and Services (ITAS) Act); and
  • launch of ICOs and subsequent treatment of assets offered to investors and traded on DLT exchanges (Virtual Financial Assets (VFA) Act).

This initiative intends to create regulatory and operational framework for projects in the blockchain industry. Next expectation would be to see how this new set of rules will apply on practice and which market players will decide to launch their business in Malta.

Isle of Jersey

On July 12, 2018, the Jersey Financial Services Commission (“JFSC”) issued a Guidance Note in which it detailed its application process for ICO issuers. The Guidance Note is a clarification of the JFSC’s approach to, and expectations of, Jersey-based Issuers of tokens.

Guidance Note covers the following areas:

  • classifications of tokens (i.e. security and non-security tokens); and
  • general requirements for all ICO issuers, including: incorporation in Jersey; receiving consent before undertaking any activity; compliance with the Commission’s Sound Business Practice Policy; AML/CFT requirements, risk management procedures; ongoing reporting requirements (e.g. the board of directors of the ICO issuer must notify the JFSC if it defaults on any tokens issued).

JFSC’s new Guidance Note sets out a clear path for ICOs wanting to launch from Jersey. The Guidance Note is an important development and provides clarifications which will serve as basis for ICO structuring in this jurisdiction.


On June 11, 2018, Canadian Securities Administrators (CSA) issued Staff Notice 46–308 Securities Law Implications for Offerings of Tokens.

Canadian regulator outlines specific cases that may have implications on the presence of one or more of the indicators of an investment contract in the context of an ICO.

The CSA explained that the fact that a token has a utility is not, on its own, determinative of whether an offering involves an investment contract.

In determining the legal nature of tokens as an investment contract, issuers should take into consideration the case law interpreting the term “investment contract”, including whether the offering involves:

  1. An investment of money
  2. In a common enterprise
  3. With the expectation of profit
  4. To come significantly from the efforts of others.

The Staff Notice also examines offerings that are structured in multiple steps whereby a purchaser agrees to contribute money in exchange for a right to receive tokens at a future date and a token is subsequently delivered.


Commodity Futures Trading Commission (CFTC) has presented a new advisory (this is the fourth advisory about virtual currencies issued by the CFTC), entitled “Customer Advisory: Use Caution When Buying Digital Coins or Tokens”, recommending ICO investors to treat any promises or guarantees of future value as a red flag.

The CFTC advises investors to ensure that they understand what rights are attached to the token they invest in, and what underlying factors could affect its value.

The list of such factors that could impact the future value of token includes:

  • the potential for forks in open-source applications that could split the market participants, increase the number of digital coins, or make coins obsolete;
  • decreasing mining or validation costs (if price is tied to those factors);
  • acceptance of other currencies, coins, or tokens for offered goods and services;
  • the link between the value of a digital coin or token and the offered product or service;
  • adoption of the digital coin or token as a broad medium of exchange or store of value;
  • future competitors or technological changes that could disrupt the underlying business.

The Agency emphasised that conducting a research prior investing is the best form of protection.

Investors should research both the token economy and competencies of founders of the projects. If information is not easily available, then investors should carefully consider their investment.

The CFTC also noted that the digital coins could also be securities if buyers are told that the developers or promoters will bring them a return on their investments, or if the buyers are promised a share of future returns of the project.

Digital tokens and coins can also be derivatives or commodities, depending on how they are structured.

Saudi Arabia

On August 12, 2018, Saudi Arabian Monetary Authority (SAMA) released a statement, reminding that “unauthorized virtual currencies are illegal inside the Kingdom of Saudi Arabia.”

According to the statement virtual currency such as Bitcoin and others are illegal and no parties or individuals are allowed to transact with them.

The statement also warned local residents about pursuing “illusion and get-rich scheme” as cryptocurrencies are associated with high regulatory and security risks.

United Kingdom

​During the month of June, 2018, two financial regulators in the United Kingdom issued letters related to crypto-assets.

On June 11, 2018, FCA issued a letter on risks and obligations of providing services to clients relating to crypto-assets.

On June 28, 2018, the Bank of England Prudential Regulation Authority followed up on FCA’s lead.


On June 11, 2018, FCA published a letter and recommended banks to ensure that they have enhanced scrutiny in respect to clients who offer services related to crypto-assets.

The FCA advises banks that offer services to clients with significant business activities or revenues from crypto-related activities that they must ensure the information about client’s source of funds.

The FCA suggested that banks might take among others the following steps in this respect:

  • Procure staff knowledge and expertise in crypto-assets.
  • Ensure that existing financial crime frameworks adequately reflect crypto-asset activity.
  • Carry out due diligence on key individuals.
  • If providing services to crypto-exchanges, assess the exchanges own due diligence policies and procedures.

FCA warned that there is also a risk that financial institutions might be involved in transactions with the companies and individuals on the EU and US sanctions lists.

The letter highlights this risk by stating that clients using state-sponsored crypto-assets, which are designed to evade international financial sanctions, should be considered as a high-risk indicator.

Bank of England

On June 28, 2018, the Bank of England Prudential Regulation Authority issued a letter and warned that banks, insurers and investment firms should take steps to protect themselves against the risk associated with crypto-assets.

Regulator reminded financial institutions about their responsibility to have effective risk strategies and risk management systems in place under the PRA’s Fundamental Rules.

Financial institutions also need to be open and cooperative with the regulator and make the appropriate disclosures.

Bank of England followed up on the FCA’s letter by adding three risk strategies and risk management systems to mitigate the risks associated with crypto-assets:

  1. Recognition that crypto-assets represent a new, evolving asset class with risks which should be considered by the board and executive management.
  2. Remuneration policies and practices should ensure that the incentives provided for engaging in this activity do not encourage excessive risk-taking.
  3. Risk management approach should be proportional to the risks of dealing with crypto-assets.

Despite the indicated risks Bank of England acknowledged that blockchain and distributed ledger technology have significant potential to benefit the efficiency and resilience of the financial system over time.


A non-binding statement issued by the Polish Financial Supervision Authority (KNF) clarifies the legal status of cryptocurrencies and cryptocurrency trading, considering doubts in respect of legality of functioning of crypto-exchanges in Poland.

According to the statement as of July 13, 2018, entities operating as crypto exchanges are required to comply with anti-money laundering and terrorism financing rules.

In addition, crypto-related activities might be treated as financial market activities and require approvals from KNF (e.g. authorisation for payment services in respect of cryptocurrency wallets and the execution of payment transactions).


During the month of July, 2018, Russian Ministry of Finances issued two letters concerning personal income tax treatment of cryptocurrency transactions.

The first letter states that the existing legislation does not provide for any specific tax treatment of cryptocurrency revenues. However, disposal of cryptocurrency generates income defined as an economic gain received in the monetary form or in kind, recognized when, and to the extent in which it is possible to evaluate such gain.

Additionally, the Ministry confirmed that individuals are allowed to apply property-related tax deductions.

The second letter does not provide any interpretation regarding applicability of relevant deductions and refers only to general definition of income.

Another authority called Rosfinmonitoring (federal executive body responsible for combating money laundering and terrorist financing) in its annually executive summary on national risks of money laundering stated that cases of use of virtual currencies in committing economic related crimes were not recorded during 2017–2018 period.

However, the regulator emphasized that cryptocurrencies might be used in drug related crimes and in money laundering and therefore crypto related activities require closer attention from Rosfinmonitoring and other authorities.


BetterTokens is a non-profit organization that functions as…

Written by

BetterTokens is a non-profit organization that functions as self-regulating body and develops due diligence standards for companies engaged in tokenization


BetterTokens is a non-profit organization that functions as self-regulating body and develops due diligence standards for companies engaged in tokenization

Written by

BetterTokens is a non-profit organization that functions as self-regulating body and develops due diligence standards for companies engaged in tokenization


BetterTokens is a non-profit organization that functions as self-regulating body and develops due diligence standards for companies engaged in tokenization

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