Cryptocurrency Regulation in Different Countries: Current News

The cryptocurrency landscape has certainly evolved from its early days as an edgy investment to being recognized as a bona fide asset class, catching the eye of governments worldwide.

And let's face it, the crypto world has seen its share of drama over the past 15 years, and it's still facing challenges. Just take last year as an example, when the founder of Binance, the biggest crypto exchange, faced money laundering charges, hot on the heels of the FTX saga, where its founder was found guilty of fraud. These events have naturally sparked a conversation about the need for some regulatory guardrails.

As it stands, over 40 countries stepped up in 2023, rolling out new regulations or beefing up existing ones, showing that the crypto community is inching towards a more mainstream embrace.

But you might wonder, 'What does this mean for me?'

As investors who navigate these digital waters every day, it's worth keeping an eye on the current regulatory scene and what's expected down the line, so we can stay informed and ready for whatever comes our way.

Let's dive into the regulations already in place and what we might see in the near future.

The Pitfalls of Regulating Crypto

Tackling how to fit cryptocurrencies into existing or brand-new regulatory frameworks is quite the puzzle, and here's why. The world of crypto is like a fast-moving train, and regulators are hustling to hop on board with the right expertise, which isn't easy given their already full plates and stretched-thin resources. The task of overseeing the cryptocurrency markets is further complicated by incomplete data, alongside the struggle to monitor a multitude of entities that might not adhere to conventional reporting standards.

Then there's the language barrier — not literally, but figuratively. The crypto scene uses a lot of jargon that isn't the same across the board, which doesn't make things any easier. Take "crypto asset," for instance; it's an umbrella term that covers a whole array of digital items created and exchanged online, each with its own quirks and features. At their simplest, cryptocurrencies are just a bunch of digital codes that live online. They might have something solid backing them up, or they might not. Their worth might be pegged to traditional money or something else of value to keep things steady. Because they're all digital, they come with a whole set of tech troubles, especially with cyber threats and snafus, which have already caused a few headaches and heartaches.

Also, the usage or intended purpose of crypto assets often intersects with the jurisdiction of multiple domestic regulatory bodies, such as those for banking, commodities, securities, and payments, each with distinct regulatory frameworks and goals. Each has its own rulebook and what they're keeping an eye on varies — some are all about keeping consumers safe, while others are making sure the whole system is rock solid or that everything's on the up and up. Plus, there are all sorts of new players in the game — like miners and developers – who don't always fit neatly into the confines of traditional financial oversight.

Traditional financial entities operate within a clear regulatory structure, with defined permissions, conditions, and scopes. However, translating these governance and duty of care standards to the crypto sphere is challenging, especially when participants may be anonymous due to the technology involved or may play informal roles. Additionally, regulators may need to address the issue of roles within centralized entities, like crypto exchanges, becoming overly concentrated.

Regulating the scene isn't just about the players and their moves; it's also about taking a hard look at how the tech behind cryptocurrencies lines up with other big-picture goals, like being kinder to the planet — some crypto mining methods are real energy hogs.

If cryptocurrencies had stayed in their own little corner, maybe these issues wouldn't be so pressing. But now, they're playing in the big leagues, doing many of the same things traditional finance does — lending, providing cash flow, and being a safe place to stash your cash. The old-school finance folks want in on the action, and they're saying that if it walks and talks like finance, it should be treated that way. That's putting the pressure on regulators to step up to the plate. And it opens up a whole new can of worms — how closely can we weave together the traditional and crypto financial systems before we start wondering if they should both be getting the same safety nets?

What Crypto Regulation Is Already in Place Around the World?

Below, we’ll take a closer look at what crypto policies are already in place or in the works across different parts of the world, so you know what’s what and where.

United States Cryptocurrency Regulation

The regulation of cryptocurrencies in the U.S. remains fragmented, with some policymakers pushing for crypto-friendly rules while regulators tackle issues like money laundering and fraud.

The SEC in particular has sought to increase oversight, most notably through its lawsuit against Ripple alleging unregistered securities sales. A 2023 court decision found Ripple's XRP sales to institutions were securities offerings but not those to retail buyers, suggesting a nuanced stance.

The SEC has also been scrutinizing major exchanges like Coinbase and Binance for their cryptocurrency listings. Amidst this heightened regulatory scrutiny, Changpeng Zhao, commonly known as CZ, faced significant pressures leading to his resignation as CEO of Binance. Despite agreeing to a $4.3 billion settlement with the U.S. Justice Department and other regulatory entities, CZ firmly requested the court to reject the SEC's lawsuit against them, arguing that the agency exceeded its jurisdiction. The SEC's accusations span from mismanaging client assets to violating securities regulations. Binance and Zhao have challenged the SEC's actions, contending that the agency is unfairly applying penalties retroactively without having established clear guidelines on cryptocurrencies. The market shares of both Binance and Binance.US have dwindled in the subsequent months, a downturn attributed in part to the regulatory clampdown. The ultimate outcome is uncertain, but we hope that CZ stays resilient through the storm.

In the meantime, the Biden administration has also called for careful weighing of crypto's risks and benefits. In 2023, it recommended expanded enforcement powers and regulations. Tackling illicit crypto activity is also a priority, though the White House sees potential upsides in a central bank digital currency or digital dollar. Federal Reserve Chair Jerome Powell has indicated a key benefit of a CBDC would be reducing the need for alternative cryptocurrencies like stablecoins.

The debate over whether cryptocurrencies should be classified as securities has intensified, especially following the FTX collapse and SEC fraud charges against its CEO Sam Bankman-Fried.

Canada Cryptocurrency Rules

Crypto might not be the official cash of Canada, but the country is definitely on the ball when it comes to setting up crypto rules.

For instance, back in August 2022, Canada's banking and insurance overseer, OSFI, rolled out its inaugural set of federal regulations specifically for the crypto scene. Later, in mid-2023, OSFI proposed amendments to these rules, which are anticipated to be implemented by 2025.

The country was also the first to give the thumbs up to the Bitcoin ETF, and now there's a bunch you can trade right on the Toronto Stock Exchange.

For those running crypto trading platforms, Canada's got a clear message: you've got to get the nod from the local financial watchdogs, courtesy of the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC).

And if you're in the crypto investment business, Canada sees you as a money service business, which means you'll need to sign up with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

When it comes to taxes, the Canadian approach is to treat digital currencies in a manner akin to other tradable commodities.

However, even with these clear-cut regulations and the triumph of Bitcoin ETFs, Canada's regulatory environment is generally perceived as more stringent compared to the U.S. This stringent stance is precisely the reason why Binance, for instance, chose to completely exit Ontario in 2021, citing the province's demanding requirements.

UK Crypto Regulation

The regulatory landscape in the U.K. received a potential boost with the appointment of Rishi Sunak as prime minister, who, as the former chancellor of the exchequer, unveiled an ambitious plan to position the U.K. as a leading global crypto hub. His proposal included the regulation of stablecoins to potentially allow them to be used widely as a recognized payment method.

Despite this push, the U.K. mirrors the U.S. in its cautious approach to crypto regulation. And while there are no specific laws tailored exclusively to cryptocurrencies, these digital assets are regarded as property rather than legal tender in the UK.

Crypto exchanges must register with the Financial Conduct Authority (FCA), which has outright banned trading of crypto derivatives. The FCA also imposes strict reporting rules around know your client (KYC) standards, anti-money laundering (AML), and combating financing of terrorism (CFT). Authorities are increasingly firm against crypto-related fraud and money laundering, as shown when the FCA banned all Binance exchange operations in 2021.

Crypto trading profits are subject to capital gains tax. Tax implications for other crypto activities depend on the specifics of the transaction. Crypto exchanges and wallet providers must also report suspicions of sanctions violations to the Office of Financial Sanctions Implementation.

The British government has been taking significant steps to regulate cryptocurrencies. In October 2022, the UK Parliament passed a draft bill categorizing crypto assets as regulated financial instruments. This integrated them further into the traditional financial system and put stablecoins under existing payments oversight. Just a year later in October 2023, HM Treasury released a detailed report proposing a regulatory framework for cryptoassets. It suggested regulating core activities like custody and lending for the first time. The report also marked centralized crypto exchanges coming under financial regulation. The UK government is steadily working to find a middle ground that promotes cryptocurrency development while protecting consumers and the financial system. More measures are likely to follow as the UK shapes its crypto regulatory regime.

EU Crypto Laws

The European Union is rolling out a new set of rules for cryptocurrencies starting in 2024. It's called MiCA, which stands for Markets in Crypto Assets regulation. This will make the EU the first major place in the world to have comprehensive, tailored laws for the crypto industry.

The goal is to create some legal certainty for crypto businesses, and hopefully attract more investment across the 27 EU countries.

MiCA is based on existing EU rules for trading stocks and bonds. But it's not just a copy-paste job. Crypto is innovative, so the rules have been adapted to fit different uses for digital coins.

Any company that wants to provide crypto services in the EU — like storage, trading, portfolio management, or advice — will need a license from one of the national financial regulators there. And if they plan to sell crypto assets to the public, they'll have to publish a clear white paper explaining the risks without misleading people.

The rules aim to prevent insider trading and other market abuse just like in traditional finance. Each country will enforce them, so they can compete to attract crypto businesses by having slick oversight.

A big chunk of MiCA deals with stablecoins. There are caps and governance requirements to keep them stable. The more widely used, the stricter the rules. In fact, stablecoins not tied to the euro will be banned from having over 1 million daily transactions.

In a nutshell, crypto companies largely support MiCA but could face huge fines if they don't comply. In return, they get to operate across the 27 EU countries, with 450 million potential customers. They also get certainty around the rules, which may attract traditional financial firms to crypto.

Some issues are still being ironed out though. There are concerns around curbs on dollar-pegged stablecoins, unclear rules for NFTs, and enforcing MiCA on foreign companies. EU agencies are still finalizing details too. But overall, it's a big step towards regulating cryptocurrencies in Europe.

The Rest of the World Crypto Policies

• Despite China's firm stance against crypto activities within its borders, the enthusiasm for such assets hasn't waned. Adding to the intrigue, a fresh state-endorsed NFT trading platform made its debut in December 2022. Additionally, at the March 2023 National People's Congress, China inaugurated a novel financial regulatory authority expected to shape the trajectory of future crypto regulations.
• In South Korea, initial coin offerings (ICOs) offering crypto assets are forbidden, and margin trading in the crypto sector is outlawed. Nevertheless, the country still holds the 27th position worldwide in terms of cryptocurrency adoption. South Korean policymakers and financial regulators are actively working to establish protections for crypto investors and to enhance the country's legal framework regarding crypto assets.
• Japan has been at the forefront with a sophisticated regulatory framework for crypto assets in place since 2017, covering exchange platforms and custodial services. In an effort to strengthen self-regulation in the crypto industry, Japan saw the formation of the Japanese Virtual Currency Exchange Association and the Japan Security Token Offering Association in 2020. These organizations play a pivotal role in vetting registration candidates, advising newcomers, and ensuring regulatory adherence. Japan has also instituted a comprehensive set of regulations for crypto exchanges to protect consumers following significant losses on unregulated platforms.
• Cryptocurrency is legal in Australia and has been under regulatory oversight since 2014, with established taxation, licensing, and consumer protection measures. Building on this foundation, the Australian government plans to introduce new licensing and custody regulations for crypto service providers, following the Token Mapping Consultation Paper released in February 2023.
• In Brazil, crypto’s all official and above board. Brazilian lawmakers, who've been dreaming up a cryptocurrency bill and nudging it through Parliament since 2015, finally saw their efforts bloom in April 2022. Fast forward to June 2023, and President Lula da Silva put his signature on Government Decree No. 11.563, effectively turning it into law. This legislation empowers the Central Bank of Brazil with the authority to oversee and regulate providers of virtual assets.

Bottom Line: What Crypto Laws Are Coming in the Nearest Future?

The sector is eagerly awaiting the United States to align with Europe and other areas, particularly Southeast Asia, in establishing concrete cryptocurrency regulations. Given that 2024 is a presidential election year, when political tensions are high, it's doubtful the industry will see this as the perfect opportunity to venture into the uncertain terrain of contentious legislation.

In the interim, industry figures are tentatively predicting the introduction of spot bitcoin ETFs in early 2024, pinning substantial hopes on this initiative by the SEC, which promises to offer easily accessible, regulated funds on exchanges. This move is anticipated to attract investors who have been hesitant so far.

Despite this potential advance, the SEC and the CFTC are expected to maintain their enforcement focus on the crypto industry through prominent cases. This leaves both regulators and the crypto firms they target in a holding pattern, waiting for judicial decisions to determine the outcome.

Across the pond, the EU's new MiCA rules are a big achievement, putting them at the forefront globally. Starting in 2024, MiCA directly regulates crypto assets and services across the 27 member countries. We'll have to see how it plays out, but it could impact beyond Europe. Multinationals often prefer a single regulatory standard, so influential EU rules tend to become the global norm — like for data protection. Overseas lawmakers may follow the EU's crypto lead. In early 2023, some U.S. Congressional staff even visited Brussels for tips.

U.S. and U.K. politicians argue clear EU rules could attract crypto business their way unless they pass their own laws. For now, the U.K. aims to prioritize regulating stablecoins in payment chains first, before wider crypto oversight. They promise legislation on this by early 2024.

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FAQs

Is There Such a Thing as the Crypto Law?

There is no single set of laws called "crypto law" that applies everywhere. Instead, the term refers to the various legal and regulatory frameworks surrounding cryptocurrencies and blockchain technology.

These rules come from diverse legal areas like securities law, tax law, anti-money laundering and terrorism financing regulations, property law, contract law, and more. Different countries are constructing their own unique approaches to overseeing and regulating cryptocurrency markets by pulling from established fields of law.

So crypto law is not one unified thing. It's an emerging collection of adapted regulations and guidelines being developed worldwide to handle cryptocurrencies and their novel technologies.

Is Crypto Regulated?

Crypto regulation differs significantly across countries. Some countries have embraced crypto with comprehensive regulations, while others have banned it entirely or imposed strict limits. For instance, the UK is crafting its own crypto regulatory stance post-Brexit. The Financial Conduct Authority (FCA) supervises the industry, concentrating on anti-money laundering and counter-terrorism financing laws. And stablecoins are still being considered for regulation as payment methods.

Is There a Government Cryptocurrency?

Yes, there is a concept of government-issued cryptocurrency, known as a Central Bank Digital Currency (CBDC). A CBDC is a digital version of a country's fiat currency, regulated directly by its central bank.

So while bitcoin and other cryptocurrencies are decentralized, CBDCs are centrally issued and controlled by central banks. They allow nations to take advantage of digital currency technology, while still maintaining the monetary policy oversight and regulatory roles of central banking.

Who Is Responsible for the Crypto Policy in the US?

Cryptocurrency regulation in the United States involves multiple agencies and legislative initiatives due to the complex nature of digital assets. There is no single regulatory body that oversees all cryptocurrencies. Rather, oversight is distributed across various federal and state entities, such as Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Internal Revenue Service (IRS), Financial Crimes Enforcement Network (FinCEN), Office of the Comptroller of the Currency (OCC), Federal Reserve, U.S. Congress, state regulators and others. Various U.S. regulatory bodies oversee different aspects related to investing, taxation, financial crimes, banking integration, consumer protection, monetary policy, and specialized legislation.

Who Is Responsible for the Crypto Legislation in the EU?

In the European Union, various institutions work together to create unified cryptocurrency regulations across all member states. The key players in EU crypto legislation are: European Commission, European Parliament and Council of the EU, European Central Bank (ECB), European Banking Authority (EBA), European Securities and Markets Authority (ESMA), and national regulatory authorities. Overall, the EU employs a collective regulatory approach to formulate unified cryptocurrency legislation across its member states. MiCA represents a significant advancement of this goal by enacting harmonized standards applicable throughout the EU.