The Complete Crypto Regulatory Landscape
Among the many concerns in the dynamics of cryptocurrencies and blockchain ecosystem is the level of acceptance. Decentralized virtual currencies operating on Distributed Ledger Transactions (DLT) are subjected to a great deal of speculation and risk which calls for a direct enforcement of regulations in this ecosystem. The steady increasing dissolute events in the crypto world points in the direction for a call to sanity. A few jurisdictions have taken proactive steps in honing the potentials of the crypto markets in subjection to accepted standards of operation. Herein we take a comprehensive look at the various burgeoning regulatory regimes.
The US regulatory landscape is somewhat ambiguous regarding crypto-currencies and crypto exchanges, with a fragmented landscape over state and federal levels. The Securities and Exchange Commission (SEC) deems crypto currencies to be securities and has begun investigating and indeed prosecuting several high level ICOs, most notably Veritaseum for a $15m ICO in 2017. This approach is encompassed in the SECs goal of applying securities law to all aspects of the crypto space, wallets, and exchanges.
Even though cryptocurrencies are not considered legal tender, they are recognized by the government as “a medium of exchange, a unit of account, or a store of value”.
The Commodities Futures Trading Commission (CFTC) has taken a more leveled view of crypto trading and has allowed for several publicly traded futures and options offering, most notably the Chicago Mercantile Exchange futures which currently are hitting record notional volumes of $1.3Bn daily.
The Department of Justice is currently consulting with both the SEC and CFTC in order to create legislation for the sector, something that will surely be welcome in the current murky regulatory US environment.
Malta positions itself as a global leader in crypto regulation. Even though cryptocurrencies are not considered legal tender, they are recognized by the government as “a medium of exchange, a unit of account, or a store of value”. Malta has no specific cryptocurrency tax legislation, nor is VAT currently applicable to transactions exchanging fiat currency for crypto. Crypto exchanges are legal in Malta under the landmark legislation introduced by its government to define a new regulatory framework for cryptocurrencies and address Anti Money laundering/Combating the Financing of Terrorism concerns. The legislation comprises of three separate bills, including the Virtual Financial Assets Act (VFA), which sets a global precedent by establishing a regulatory regime applicable to crypto exchanges, ICOs, brokers, wallet providers, advisers, and asset managers. The VFA regulations (effective from November 2018) also introduced the Innovative Technology Arrangements and Services Act which established the regime for the future registration and accountability of crypto service providers. The Malta Digital Innovation Authority was also established: going forward, the MDIA will be the government authority responsible for creating crypto policy, collaborating with other nations and organizations, and enforcing ethical standards for the use of crypto and blockchain technology.
The United Arab Emirates in 2018 launched a crypto asset regulatory framework under the Abu Dhabi Global Market (ADGM). The regulatory framework is to regulate spot crypto asset and exchange activities, custodians and other intermediaries in ADGM through the successful consultation of ADGM Financial Services Regulatory Authority (FSRA).The framework addresses the risks associated with crypto asset activities, money laundering and financial crime, consumer protection, technology governance, custody and exchange operations.
Australia’s government in 2017 accepted the use of cryptocurrencies specifically Bitcoin and similar currencies subjected to the Capital Gains Tax Laws (CGT). Further guidelines from the Australian Securities and Investments Commission (ASIC), issued in 2017 to advise on the legal treatment and structure of tokens (security or utility) under the general consumer law and the Corporations Act.
The Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg regulates the cryptocurrency exchange space and new crypto businesses must obtain a payments institutions license intended for trading. Licenses involve AML/CFT reporting obligations under Luxembourg’s “electronic money” statutes. The first license was granted in 2016 to Bitstamp which trades in a range of currencies, including USD, EUR, Bitcoin, and Ethereum — and passports into EU member-states.
In 2018, Gibraltar introduced its Digital Ledger Technology Regulatory Framework after extensive engagement with the crypto industry. Exchanges under the framework must register with the Gibraltar Financial Services Commission (GFSC) to demonstrate capacity in meeting the ‘principles’ of the DLT framework, which includes a strong focus on the detection and disclosure of money laundering and terrorist financing. The regulatory framework introduced is an amendment of the Gibraltarian Financial Services (Investment and Fiduciary Services) Act 1989, to regulate the activities of Gibraltar-based companies that use DLT for virtual currency exchanges.
Although Canada does not accept cryptocurrencies as a legal tender with inconsistent cryptocurrency exchange regulations at the provincial level, cryptocurrencies are treated as securities at the Federal level. A published notice from the Canadian Securities Administrators (CSA) directs for the application of existing securities laws to ICOs and ITOs, and cryptocurrency investment funds and the cryptocurrency exchanges trading these products.
Crypto-based Exchanges in Estonia operate within a well-defined regulatory framework which endorses activities in exchanges to be legal. Exchanges are subjected to Strict reporting and KYC rules under this framework and cryptocurrency exchanges must obtain two licenses from the Financial Intelligence Unit of Estonia: the Virtual Currency Exchange Service License, and the Virtual Currency Wallet Service License.
There is progressive approach from the UK government in ensuring sound and well-regulated activity in the blockchain ecosystem. No specific regulations have been introduced to oversee the industry, however, cryptocurrency exchanges in the UK are mandated to register with the Financial Conduct Authority (FCA) — although some crypto businesses may be able to obtain an e-license. The FCA guidance stresses that entities engaging in crypto-related activities which fall under existing financial regulations for derivatives (like futures and options) require authorization.
In Switzerland, cryptocurrencies and exchanges are deemed to be legal. The Swiss Federal Tax Administration (SFTA) considers cryptocurrencies to be assets: subject to the Swiss wealth tax, and must be declared on annual tax returns. The adoption of a registration process on cryptocurrency exchanges in obtaining a license from the Swiss Financial Market Supervisory Authority (FINMA) ensures a sound environment for crypto exchanges to operate. Cryptocurrency regulations in Switzerland are also in place for ICOs: in February 2018, FINMA published a set of guidelines which applied existing financial legislation to offerings across a range of areas — from banking to securities trading and collective investment schemes.
The government of South Korea ensures adherence of strict cryptocurrency regulations particularly to cryptocurrency exchanges, in registration processes and other measures overseen by the South Korean Financial Supervisory Service (FSS). The Financial Services Commission (FSC) in South Korean also implemented tighter reporting obligations on banks with accounts held by crypto exchanges.
Singapore offers a friendly environment for cryptocurrency exchanges and trading as these activities are legal but does not consider cryptocurrencies as a legal tender. The Monetary Authority of Singapore (MAS) takes a relatively soft approach to cryptocurrency exchange regulations, applying existing legal frameworks where possible. Trading of cryptocurrencies are subjected to the country’s tax laws.
Bermuda’s Digital Asset Business Act (DABA) was launched in April 2018, to regulate the digital asset business. DABA applies to any entity incorporated or formed in Bermuda and carrying on digital asset business (irrespective of the location from which the activity is carried out) and to any entity incorporated or formed outside of Bermuda and carrying on digital asset business in or from within Bermuda. DABA regulates crypto trading, exchange and securities activities.
Over all the regulations keep coming, something that should be welcome as the sign of a healthy and maturing environment in which crypto assets of all classes will continue to grow.
Written by Egya Ekow Eshun,intern at Nvelop Holding, a UAE based blockchain and technology investment firm.
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