In recent months, we have written about how the regulatory approach to cryptocurrencies and cryptoassets in the UK and around the world is starting to mature. Until now, the law in this sector has been disorganized and very ineffective, but it is starting to change for the better, although slowly, and in different ways in each country. Here’s a look at how crypto regulation is evolving in three geographies around the world, including the United States, Asia/Pacific, and the EU.
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Cryptocurrency Regulation in the United States
Cryptocurrency regulation still varies between US states, but at the federal government level, progress is being made. Under the current regulatory structure in the US, businesses that exchange cryptocurrencies must be registered with the Financial Crimes Enforcement Network (FinCEN) in order to trade. They must also have Anti-Money Laundering / Combating the Financing of Terrorism (AML/CFT) measures and submit mandatory reports to supervisory authorities.
Stating how important crypto regulation is at the federal level, in March 2022, US President Joe Biden announced a “whole-of-government” approach to the regulation of crypto assets in bulk. executive order. This will force all federal agencies and departments to consider how to protect consumers and ensure financial stability and national security while addressing climate risks. Why is this announcement so important? The President’s statement included the following words, “The United States must maintain technological leadership in this rapidly evolving space, supporting innovation while mitigating risks to consumers, businesses, the broader financial system, and the climate. And, it must play a leading role in international engagement and consistent global governance of digital assets.” with democratic values and US global competitiveness”. So, this statement made the world see that the US is ready to become the world leader in crypto.
Cryptocurrency Regulation in the Asia/Pacific region
It is well established that China has a global reputation for tough cryptocurrency regulation. How difficult? Consider that in 2021, 10 government authorities, including the People’s Bank of China (PBOC), jointly issue a statement to clarify that:
- Virtual currency (cryptocurrency) is not legal tender
- illegal cryptocurrency business activities
- Cryptocurrency exchanges from overseas provide services to Chinese citizens over the internet that are considered illegal financial activities.
Due to the extremely difficult regulatory environment for crypto trading in China, there is no hope that this position will change in the near or medium term. However, this does not mean that the Chinese government will not accept cryptocurrency. China is expected to introduce its own Central Bank Digital Currency (CBDC) (called digital RMB or e-CNY), which is undergoing extensive testing. e-CNY is even being used by attendees of the 2022 Winter Olympics in Beijing.
Compared to many other countries, cryptocurrency regulation is quite advanced in Australia. Cryptocurrencies and exchanges are legal in the country. Crypto exchanges wishing to trade in Australia must register and obtain approval from the Australian Transaction Reporting and Analysis Center (AUSTRAC). AUSTRAC, like the UK’s FCA, is tasked with preventing, detecting and responding to criminal abuse of the financial system, including the crypto market. Therefore, exchanges must comply with strict AML and CFT regulations and reporting obligations. At Australian Taxation Office (OTA) It is also clear that the disposal of cryptocurrency (ie selling, gifting, trading, converting, or using) can attract capital gains tax (CGT).
The Australian Securities and Investments Commission (ASIC) also provides extensive regulatory guidance for businesses handling crypto-assets. It provides regulatory guidance on:
- What to consider when offering crypto-assets
- What constitutes misleading or deceptive conduct regarding crypto assets or initial coin offerings (ICOs)
- When crypto-assets or ICOs are considered financial products
- When crypto-asset trading platforms become financial markets
We expect the Australian authorities to continue at the pace they have set when it comes to cryptoasset regulation, further tightening the rules for crypto exchanges and potentially becoming a world leader in this space.
Cryptocurrency Regulation in the European Union
As a bloc of countries overseen by Brussels, countries in the European Union are not allowed to create their own cryptocurrencies in the same way that other countries do. The use of cryptocurrencies is legal in the EU, but there is no consistent picture when it comes to crypto exchanges. Crypto exchanges are required to register and obtain approval from state-level regulators before they can trade. Useful, if the exchange obtains authorization in one of the countries of the European Union, the trading rights are effectively a passport, so that they can be used throughout the EU. Cryptocurrency exchanges are required to comply with the strict requirements of 6AMLD (EU anti-money laundering directive).
The EU is currently working on a new set of crypto regulations to take advantage of the potential benefits while mitigating the risks it poses. The Regulation of Markets in Crypto-assets (MiCA) was introduced in 2020 to provide a regulatory basis for crypto-asset markets to develop in the EU where the existing financial regulation model does not work. Negotiations are currently underway on the final form of this crypto regulation with the European Union countries. This includes a new regulatory approach to the licensing of crypto-asset issuers, rules of conduct for those trading in crypto, and updated consumer protection.
This article covers only the ‘tip of the iceberg’ of crypto regulation around the world. What is important is the difference in approach and the degree to which crypto is considered a strategic priority and a threat to control in many countries. It will be interesting to see how individual countries and blocs change their minds as other countries refine their positions.