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Worldwide Crypto Regulation: An Overview


Cryptocurrencies have been around for a while now, but with their growing popularity,

governments have long started to take notice and implement regulations. While some countries are more welcoming of crypto than others, it seems that the general trend is towards more regulation. Let's take a look at a high-level overview of how crypto regulation is evolving worldwide.


Europe and MiCa


The European Commission has been one of the most proactive regulators when it comes to collectively regulating cryptoassets in the region, moving away from jurisdiction-centric regulation Europe has enjoyed until now. In October 2018, they released a report called "Regulation of Markets in Crypto-assets" which set out their plans for regulating the market. The report stated that the Commission plans to regulate cryptoassets under existing EU financial legislation, as well as new legislation specifically for cryptoassets.

Some of the key points of the proposed regulation include:

- Regulating exchanges and custodian wallet providers as financial service providers

- Restricting the sale of cryptos to professional investors only

- Regulating initial coin offerings (ICOs)

These regulations are still in draft form and have not yet been passed into law expected to be finalized mid 2023, but they give an indication of the direction that the EU is heading in when it comes to cryptoassets.

USA and Canada:


The United States and Canada have both been active in developing cryptocurrency regulations.


In the United States, the Financial Crimes Enforcement Network (FinCEN) is responsible for developing and enforcing regulations relating to money laundering and terrorist financing. In March 2013, FinCEN released a guidance paper on the application of the Bank Secrecy Act to virtual currencies. This guidance paper clarified that FinCEN considered virtual currencies to be "money transmitters" and therefore subject to anti-money laundering regulations.


In December 2017, the US Congress passed the Tax Cuts and Jobs Act. This act contained a provision known as the "virtual currency guidance" which classified cryptocurrencies as property for tax purposes. This means that cryptocurrency transactions are subject to capital gains taxes.


In Canada, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) is responsible for developing and enforcing regulations relating to money laundering and terrorist financing. In July 2017, FINTRAC released a guidance paper on the application of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to virtual currencies. This guidance paper clarified that FINTRAC considers virtual currencies to be "financial instruments" and therefore subject to anti-money laundering regulations.


Recently, the Canadian Securities Administrators (CSA) released a staff notice in which they outlined their views on the regulation of cryptocurrencies. In the notice, the CSA stated that most cryptocurrencies fall within the definition of a security under Canadian law. As a result, all cryptocurrency exchanges and issuers in Canada must be registered with the CSA.

The CSA also outlined their views on initial coin offerings (ICOs). They stated that most ICOs are securities offerings and must be conducted in accordance with Canadian securities laws.


Asia:


In general, the trend is towards more regulation, but there are a few exceptions.


Japan is one of the most cryptocurrency-friendly countries in Asia. The Japanese government has been actively encouraging the development of crypto businesses and has even created a special zone in Tokyo for crypto companies to operate in. As a result, Japan has become a leading centre for cryptocurrency innovation.


China is another country that is moving towards more regulation. In September 2017, the Chinese government banned all ICOs, and later that year they banned all cryptocurrency exchanges. This has had a negative impact on the Chinese crypto market, but recent reports suggest that the Chinese government may be reconsidering their stance on cryptoassets.


South Korea is another country that is moving towards more regulation. In January 2018, the South Korean government announced plans to ban anonymous cryptocurrency trading accounts. This measure was aimed at preventing money laundering and fraud.


Hong Kong is one of the most crypto-friendly countries in Asia. The Hong Kong government has been actively encouraging the development of crypto businesses and has even created a special zone in Hong Kong for crypto companies to operate in. As a result, Hong Kong has become a leading centre for cryptocurrency innovation.

In March 2018, the Hong Kong Monetary Authority (HKMA) released a consultation paper on regulating virtual currencies. The HKMA is proposing to regulate virtual currencies under the existing Payment Systems Ordinance (PSO). Some of the key points of the proposed regulation include:

- Regulating exchanges and custodian wallet providers as payment service providers

- Restricting the sale of cryptos to professional investors only

- Banning initial coin offerings (ICOs)


The Malaysian government announced plans to regulate the use of cryptocurrencies. The proposed regulation would require all crypto exchanges to be registered with the government and would prohibit foreigners from owning more than 49% of a Malaysian crypto exchange.

Labuan is a special administrative region of Malaysia that has been established as a tax haven. As a result, Labuan has become a popular destination for cryptocurrency


businesses. In March 2018, the Labuan Financial Services Authority (LFSA) released a statement welcoming cryptocurrency businesses to Labuan and stating that they will be working with the Malaysian government to develop regulations for cryptocurrency businesses.

The Phillipines has been relatively welcoming of cryptocurrencies, and has not implemented any major regulations yet. However, the Phillipines Securities and Exchange Commission (SEC) is currently working on a regulatory framework for cryptocurrencies.

In March 2018, the SEC released draft regulations for public comment. The draft regulations covered a wide range of topics, including:

- The definition of a digital asset

- The regulation of exchanges

- The regulation of initial coin offerings (ICOs)


The SEC received a lot of feedback from the public, and later on released revised regulations for public comment. The revised regulations covered many of the same topics as the original draft, but added new provisions for:

- The regulation of crypto mining

- The regulation of virtual currencies as a security

- The regulation of virtual currency exchanges


The SEC is still in the process of drafting their final regulations, however it is clear that they are taking a proactive approach to regulating cryptocurrencies.


Africa:


The African continent is a diverse region with a wide range of different countries and cultures. As a result, the approach to crypto regulation varies greatly from country to country.


Some African countries, such as South Africa, have been very welcoming of cryptocurrencies and have enacted legislation that promotes the development of the crypto industry. Other countries, such as Nigeria, have taken a much more cautious approach and have implemented regulations that restrict the use of cryptocurrencies.


The trend is towards more regulation, but there is still a lot of variation from country to country.


New Zealand and Australia:


Cryptocurrency regulation in Australia is primarily handled by the Australian Securities and Investments Commission (ASIC). ASIC has released a number of guidance documents on the regulation of cryptoassets, including:

- Information Sheet 219: Initial Coin Offerings (ICO)

- Information Sheet 220: Cryptocurrencies and Regulated Investment Products

- Information Sheet 221: The Use of Cryptocurrencies in Businesses

ASIC has stated that it does not consider cryptocurrencies to be securities or regulated investment products, and as a result, they are not subject to the same regulations as securities and investment products. However, ASIC does consider businesses that use cryptocurrencies to be carrying on a financial services business, and as such, they are subject to the same regulations as other financial services businesses.


The New Zealand Central Bank has also released a number of guidance documents on the regulation of cryptocurrencies. In December 2017, the Central Bank released a consultation paper on regulating virtual currencies. The Central Bank is proposing to regulate virtual currencies under the existing Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT Act). Some of the key points of the proposed regulation include:

- Regulating exchanges and custodian wallet providers as financial institutions

- Restricting the sale of cryptos to professional investors only

- Banning initial coin offerings (ICOs)


Offshore Regions

Cryptocurrency regulation in the offshore regions is still in its early stages, and there is a lot of variation from country to country.


The Bahamas:

The Bahamas has been very welcoming of cryptocurrencies and has enacted legislation that promotes the development of the crypto industry. In March 2018, the Bahamas Financial Services Board (BFSB) released a statement welcoming cryptocurrency businesses to the Bahamas and stating that they will be working with the government to develop regulations for cryptocurrency businesses.


The DARE Act is a new piece of legislation that was passed in the Bahamas in May 2018. The DARE Act stands for "Digital Asset Regulations and Exchange." The goal of the DARE Act is to create a regulatory framework for cryptocurrencies and digital assets in the Bahamas. The DARE Act covers a wide range of topics, including:

- The definition of a digital asset

- The regulation of exchanges

- The regulation of custodian wallet providers

- The treatment of initial coin offerings (ICOs)

The DARE Act is still in its early stages, and there are many details that have yet to be finalized, however with some firms like FTX already regulated under the act, it is clear that the Bahamas is taking a proactive approach to regulating cryptocurrencies and digital assets.

The British Virgin Islands:


The Financial Services Commission (FSC) is the regulating body for financial services in the British Virgin Islands (BVI). In September 2018, the FSC released a statement stating that they will be licensing crypto exchanges and custodian wallet providers in order to ensure compliance with anti-money laundering and countering financing of terrorism regulations.


The FSC has stated that they are not interested in regulating cryptocurrencies themselves, but rather in ensuring that businesses that deal with cryptocurrencies comply with anti-money laundering and countering financing of terrorism regulations. As a result, the FSC will only be licensing exchanges and custodian wallet providers that can demonstrate that they are compliant with these regulations.


Bermuda:


The Digital Asset Business Act 2018 (DABA) is a new piece of legislation that was passed in Bermuda in May 2018. The DABA is designed to create a regulatory framework for cryptocurrencies and digital assets in Bermuda.


The Bermuda Monetary Authority (BMA) is the regulatory body for financial services in Bermuda. In June 2018, the BMA released a statement announcing that they will be licensing crypto exchanges and custodian wallet providers in order to ensure compliance with anti-money laundering and countering financing of terrorism regulations.

The BMA has stated that they are not interested in regulating cryptocurrencies themselves, but rather in ensuring that businesses that deal with cryptocurrencies comply with anti-money laundering and countering financing of terrorism regulations. As a result, the BMA will only be licensing exchanges and custodian wallet providers that can demonstrate that they are compliant with these regulations.


Cayman Islands:


The Cayman Islands Monetary Authority (CIMA) is the regulatory body for financial services in the Cayman Islands. CIMA released a statement announcing that they will be licensing crypto exchanges and custodian wallet providers, as well as funds in order to ensure compliance with anti-money laundering and countering financing of terrorism regulations.


When looking over and analyzing crypto regulations worldwide it is always important to seek professional advice. SAXE Advisors have experience setting up crypto licensed entities in over 15 jurisdictions and would happily guide you through a process of setting up a crypto entity, or counsel on developing your business around existing regulatory frameworks. Schedule a FREE consultation here


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