Cryptocurrency Regulations Around the Globe
Jun 22, 2018
The cryptocurrency market is an environment riddled with extremely volatile prices, high speculation, and vulnerability to illegal activities. But with a total market cap of over USD$280 billion and growing, it is hardly illegitimate. As a result of the cryptocurrency market’s growing popularity, it has created the necessity of regulation to protect investors.
There are currently no globally-agreed upon rules, regulations, or guidelines governing cryptocurrencies, but that might change soon. At a G-20 meeting this past March, Central Bank of Argentina governor Federico Sturzenegger outlined a summer deadline for members to have “specific recommendations on what to do”1 and also stated that task forces are working on submitting proposals by July. Some members, like Italy’s Central Bank leader Ignazio Visco, and International Monetary Fund director Christine Lagarde, expressed concerns over cryptocurrencies being a vehicle for money laundering and financing global terrorism, but agree that cryptocurrencies as a whole should not be banned. Going along with this, Financial Stability Board chairman Mark Carney said in a March 18th letter, “The FSB’s initial assessment is that crypto-assets do not pose risks to global financial stability at this time.”1
The G-20 members’ cautious stance on cryptocurrencies is widely shared by other countries across the world, some more laissez-faire, and some much more controlling. Below we will take a more in-depth look at some major countries’ cryptocurrency regulations.
Within the United States, cryptocurrencies are not considered to be a Legal Tender. The regulatory environment within the US is growing; the Securities and Exchange Commission (SEC) is currently determining on a case-by-case basis if specific cryptocurrencies and ICOs should be classified as securities or not. If the SEC does find them to be securities, they will be regulated as such. The Commodity Futures Trading Commission (CFTC) is also investigating whether certain cryptocurrencies can be regulated as commodities, which it deemed Bitcoin was back in March 2018. More crypto-affiliated companies are starting to realize that it is more beneficial to work with regulators than against them on this topic, so companies like Coinbase and Goldman Sachs’ Circle have recently announced plans to launch their own licensed cryptocurrency securities trading. Circle is seeking a federal banking license to increase the services it can provide, and also intends to attain registration as a brokerage and trading venue with the SEC. Additionally, Coinbase has applied for a license with the SEC to become a regulated “broker-dealer.” US regulatory bodies used to see cryptocurrencies as something they can regulate with just one-size-fits-all blanket regulations, but they are now specifically targeting scam and illicit businesses, with the SEC focusing on fraudulent companies and ICO scams.
There is a growing interest in cryptocurrencies throughout the European Union. The EU has reiterated its focus on protecting against money laundering1, and requires all cryptocurrency exchanges to follow the same know-your-customer (KYC) rules that traditional banks follow2. Though these aren’t the strongest of regulations we have seen, it is illegal for EU member states to introduce their own cryptocurrencies, which Estonia tried to do. The EU is actively working on developing more protective regulations.
Great Britain, like the EU is looking to increase their cryptocurrency regulations to protect consumers in the country. In March, Britain’s Financial Conduct Authority (FCA) announced the creation of their own Cryptocurrency Task Force, to be affiliated with the Bank of England3. The FCA has released guidelines on offerings of cryptocurrency derivatives, and will supposedly deliver a report on the state of cryptocurrencies by the end of the year.
As you might have heard, Switzerland has become one of the friendliest countries in the world for cryptocurrencies, and is a magnet for ICOs. All cryptocurrency exchanges must register with the Swiss Financial Market Supervisory Authority, and there are clear guidelines for ICOs to follow. The Swiss are currently moving towards a complex system of regulating cryptocurrencies based on their uses, a lot like how the US is planning to regulate them. Different regulations will apply to coins exchanged as currencies, held as investments (securities), or used as tokens (utilities). Switzerland has high aspirations for cryptocurrencies, as proven by Economics Minister Johann Schneider-Ammann’s comment to journalists in January that he wants the country to become a “cryptonation.”1
The Chinese certainly have some of the most constricting regulations for cryptocurrencies in the world. In 2017, China opted for a complete ban on all ICOs and domestic exchanges throughout the country in an effort to protect the public against market manipulation, and to guarantee financial stability. The People’s Bank of China (PBOC) views virtual currencies as illegal since they aren’t issued by any recognized monetary institutions, hold no legal status that makes them an equivalent to currencies, and therefore instructs against their use as a currency.4 Although the PBOC has made cryptocurrencies illegal, there hasn’t been widespread legal action being taken against foreign exchanges operating in the country, nor has much legal action been taken against individuals trading on these exchanges. Certain exchanges, like Huobi and OKEx, have relocated from mainland China to Hong Kong. There there are no regulations Hong Kong has on cryptocurrencies, thus creating a legal gateway for Chinese cryptocurrency investors to keep trading in the global market. In addition, Beijing is currently reconsidering the ban on cryptocurrencies, and it is quite possible that the ban could actually be lifted in the future. This could occur as a consequence of China being very keen on blockchain technology itself. China is investing heavily in blockchain technologies, and is even developing an index for virtual currencies. The main intention for these developments is to prepare the way for future regulations, possibly allowing exchanges and other cryptocurrency companies to operate within their borders.
Unlike China’s tough scrutiny of cryptocurrencies, Japan is open to them, but with proper regulatory measures. Japan was the first country to adopt a national system to regulate cryptocurrencies, and the Financial Services Agency (FSA) even allowed for goods and services to be paid for with Bitcoin in April 2017. Japan’s current regulations regarding exchanges and ICOs are changing and new regulations are looking to be drafted. These guidelines intend to identify investors, track the progress of the projects, prevent money laundering, and to protect the equity and debt owners. The FSA is voting on the guidelines to legalize them.
Regarding exchanges, the Japan Virtual Currency Exchange Association has introduced regulations, which on June 27 will also be voted on by the FSA, hoping to protect both the exchanges and customers. There is also talk that Japan might further prohibit privacy coins in the future, with concerns that these cryptocurrencies are contributing to drug trafficking, money laundering, and other illegal actions. The FSA has already banned privacy coins Monero, Augur, Dash, and Zcash from their largest exchange Coincheck. In a recent Bloomberg report, Japan’s FSA has improved its measures against money laundering on exchanges, and has issued business-improvement orders two six of their largest exchanges Bitflyer, QUOINE, Bitbank, BTCBOX, BITPoint Japan, and Tech Bureau.
Like Japan, South Korea’s regulations on cryptocurrencies are very loose and lenient. There has been a lot of turmoil within exchanges after the USD$33 million hack of Coinrail, one of South Korea’s largest exchanges. The Korean Financial Intelligence Unit (KFIU) has begun discussing exchanges for crypto exchanges. Currently, one only needs a $40 communication vendor license to legally operate a cryptocurrency exchange. But now, the KFIU is recognizing these exchanges as financial institutions, and will be subjected to equivalent, if not stricter regulatory measures as banks in the country. The primary focus of this is to protect investors, prevent money-laundering, and to help prevent large exchange hacks like that of Coinrail and even more recently, Bithumb. On another note, ICOs in South Korea are currently outlawed, but South Korea’s National Assembly is aiming to remove this ban in the near future to make room for proper regulation.
In conclusion, clearly there is a global movement to effectively regulate cryptocurrencies, and through effective regulation, legitimize them.