Crypto Regulation Worldwide

Cryptocurrencies were originally meant to be stateless, borderless entities, not obligated to the legal frameworks of any state or country. The reality is different. The state in the cryptocurrency industry has brought increased governmental censure. There is growing consensus that regulation is good because it establishes rules and order in an otherwise lawless jungle that provides a stage to dubious actors and businesses. It also signals an intent to engage in dialogue with businesses in the crypto ecosystem.

Global Regulators

At this year’s G20 meeting in Argentina, present members said that the cryptocurrencies have to be examined in order to obtain more information before any regulations could be proposed. Therefore, finance ministers have set a deadline in July 2018 to present a bundle of specific recommendations for the first step toward unified regulation of cryptocurrency.

However, not every member nation is fond of the plan. For instance, president of Brazil Central Bank has stated that cryptocurrencies are not going to be regulated in Brazil, moreover, it would not necessarily be following the regulations outlined by the G20.

It is interesting to observe how different are the approaches to the regulation among institutions. On one hand the Financial Stability Board, a global organisation formed to oversee international financial stability, expresses its reservations towards calls from some countries to take severe measures against digital currencies, while on the other hand the International Monetary Fund, founded to foster global monetary cooperation and secure financial stability, is calling for strict policies that would protect consumers from fraud and prevent money laundering and the financing of terrorism.

Japan

Japan has always been friendly to cryptocurrencies, but in 2014 Tokyo-based cryptocurrency exchange Mt. Gox was a target of the largest bitcoin hack ever. In response to the massive digital currency heist, the Financial Action Task Force (FATF), the Paris-based international body that creates policies to combat money laundering, issued its “Guidance of Risk-Based Approach to Cryptocurrencies” in 2015. This document was one of the first steps taken towards regulating crypto space. It recommends licensing of virtual currency exchanges and subjects them to the same rules and oversight as any other financial institution or money transmitting business. Abiding by the recommendations of FATF, Japan revised its Payment Services Act and adopted a new law which legally defines virtual currency as a form of payment, but it does not define bitcoin as legal tender, even though it acknowledges that you can use it to purchase things with. Furthermore, the law requires any virtual currency exchange that wants to do business in Japan to register with the country’s Financial Services Agency (FSA) and are therefore held accountable to their clients. This means, that they have to keep customer assets separate from the assets of the exchange, maintain proper bookkeeping, undergo annual audits, file business reports and comply with strict KYC and AML rules.

Despite the strict security measures, earlier this year another, an immense heist happened on Coincheck that prompted heavier oversight. Therefore, Japan is planning to pass on a part of overseeing virtual currency exchanges to a self-regulating body. For that reason, in April 2018, the Japan Virtual Currency Exchange Industry Association launched. Comprised of the first 16 licensed Japanese virtual currency exchanges, the Association will have the power to create and enforce rules and set fines, and eventually, develop standards for ICOs.

China

China has banned all crypto activities. In 2017, the government banned ICOs and now it is trying to completely eliminate trading of virtual currencies as well as individuals and businesses that provide related services. It also shut down domestic cryptocurrency exchanges and is even looking to ban the mining of cryptocurrencies in the country. Yet, governor of China’s central bank recognizes that digital currencies are inevitable and he is encouraging an in-depth research of digital currencies in order to help with issuing its own digital currency, but is not recognizing bitcoin as a payment tool. Moreover, he claims that virtual currencies are not integrated with the existing financial products nor with the spirit of China’s economy. For the adoption of cryptocurrencies, it is important to prevent the introduction of speculative products like bitcoin, because their expansion could have unexpected impact on monetary policy and financial stability. To sum up, China doesn’t have any concrete framework that would regulate crypto and is banning the cryptocurrency activities rather than providing more constructive solutions.

United States

With a diversity of regulators in US comes a diversity of definitions of what cryptocurrencies are. For instance, Commodity Futures Trading Commission (CFTC) defined virtual currencies as commodities and has asserted jurisdiction over their derivatives. While Securities and Exchange Commission (SEC) stated that cryptocurrencies are unregistered securities that violate law. It is not known if this applies to all digital currencies or not, though.

Internal Revenue Service defined it, for example, as property. Many in the industry have complained that regulatory clarity is more than necessary, but many are also lobbying against regulations because it could affect their business models. However, virtual currencies have no legal tender status in any US jurisdiction.

European Union

The EU’s goal is to become a global hub for blockchain and fintech. In February, the EU launched the EU Blockchain Observatory with the aim to accelerate blockchain innovation and the development of the blockchain ecosystem within the EU and to help establish Europe’s position as a global leader in this technology. A month later, the EU released its much-anticipated “Action Plan,” the EU’s official angle on regulating blockchain and fintech. To put it in simple terms, this will create a testing environment that will let innovation flourish while keeping the risk at a minimum.

The lack of serious regulatory initiatives in the past has created a war within the EU, with member states such as Malta, Gibraltar and Lithuania competing for the title of the most crypto-friendly jurisdictions. We have written about the Malta taking the supremacy among the European countries. Should the EU continue its effort towards a united regulatory framework, we could see the old continent turning into a global pioneer.

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