In the past half-decade, cryptocurrencies have witnessed spectacular and volatile growth. They have permeated and seeped into the regulated financial system. This has prompted governments around the world to increase their efforts to regulate this space. Countries are working on their crypto regulatory frameworks, but they are struggling to acquire the talent and the expertise to keep pace with the crypto market.
Countries are Putting Forth the Effort
As we’ve already mentioned, countries around the world are doing their best to come up with their own cryptocurrency regulations. Japan and Switzerland are ahead of other countries, as they have introduced new legislation covering crypto assets and their service providers. Other than that, The European Parliament approved the Markets in Crypto-Assets bill (MiCA) which contains an exhaustive set of rules for the crypto market. Other countries, such as the United Arab Emirates, the United Kingdom, and the United States, are in the drafting phase of their regulations.
Regulations in Different Countries Around The World
Now that we know that different countries are creating the regulations as we speak, let’s look at their current crypto regulation scenario:
The United States
Despite the overlap in viewpoints among agencies, the crypto regulatory framework is evolving in the US. The Securities and Exchange Commission is the most powerful regulator when it comes to crypto regulations, but different agencies such as the Commodities Futures Trading Commission (CFTC), Federal Reserve Board, and the United States Department of the Treasury have their own interpretations and guidance.
The SEC views cryptocurrency as securities, the Treasury looks at it as a currency, and the CTFC considers it a commodity. The IRS refers to it as a digital representation of value that works as a unit of account, a medium of exchange, and a store of value. Looking at all these different viewpoints, The White House issued an Executive order directing the agencies to coordinate their regulatory efforts.
The Biden administration is also taking active steps to stop illegal crypto activity. They are planning whether to amend the Bank Secrecy Act and laws against unlicensed money flowing into digital asset exchanges and nonfungible token (NFT) platforms
Canada is the first country to approve Bitcoin exchange-traded funds (ETFs) for individual investors. The Investment Industry Regulatory Organization of Canada (IIROC) and Canadian Securities Administrators (CSA) have issued guidance directing crypto exchanges to register with their local provincial regulators.
Canada employed a clear registration regime in 2021, which requires the trading platforms that offer custodial services in Canada to register under the new rules. The Ontario Securities Commission has passed a law against unregistered foreign trading platforms. Moreover, the Canada Revenue Agency (CRA) deems crypto a commodity according to the Income Tax Act.
The UK Financial Conduct Authority (FCA), the Bank of England, and HM Treasury are the country’s Crypto-assets taskforce. KYC, AML, and CFT regulations are covered by the FCA, and crypto exchanges have to register with the authority. Moreover, the FCA doesn’t allow crypto derivatives trading in the country. Investors have to pay capital gains tax on their trading profits, and their crypto activities will dictate the taxes.
All the custodian wallet providers and crypto exchanges are directed to comply with the Office of Financial Sanctions Implementation’s (OFSI) reporting obligations by August 30 2022.
In 2018, the Australian Financial Intelligence Unit (AUSTRAC) and AML/CTF regulator implemented new laws for crypto exchanges. According to the law, they are free to operate in the country, but they have to register with AUSTRAC, implement KYC policies, report suspicious activities, and comply with AML legislation.
In 2021, Australia started the licensing framework for crypto exchanges, and the government said they would begin consultation on establishing it in 2022. This will allow investors to buy crypto assets in a regulated environment. Also, in the eyes of the Australian government, digital currency is not seen as money.+
According to the Payment Services Act, Japan considers cryptocurrencies to be legal property. In 2017, Japan's National Tax Agency passed legislation requiring cryptocurrency to be classified as miscellaneous income and taxed accordingly. The PSA has undergone many amendments, and several new regulations have come up. Also, the 2019 amendment of the Financial Instruments and Exchange Act (FIEA) has introduced the term “crypto asset” and regulates crypto derivatives trading.
All crypto exchanges have to register with the Financial Services Agency (FSA) and comply with their AML/CFT regulations. In 2022, the government declared that they were going to introduce remittance rules in 2023 to stop money laundering via crypto exchanges.
In 2013, The People’s Bank of China (BOC) banned financial institutions from dealing with cryptocurrencies, and the ban was later expanded to crypto exchanges and ICOs. China was the epicenter of mining due to low electricity costs, but it was banned in 2020. The BOC has embraced blockchain technology and is working on developing its own digital currency, the digital yuan. In 2022, it was rolled out under a pilot test program In a total of 23 cities across China, including the cities of Shanghai, Beijing, and Tianjin. The e-CNY or the digital yuan has an app (currently in the beta version) that was officially launched for Android or iOS on Chinese app stores.
Just like the UK, Singapore considers crypto as property. However, it is not legal tender in the country. The Monetary Authority of Singapore (MAS) regulates crypto exchanges according to the Payment Services Act (PSA).
Investors prefer Singapore for crypto investments because long-term capital gains taxes are non-existent. In 2022, the country warned digital payment token (DPT) providers to stop advertising their services.
South Korean regulators are very cautious regarding crypto exchanges and companies. There have been several crypto-exchange hacks, and after that, the country passed the “Act on Reporting and Using Specified Financial Transaction Information,” or the Financial Transaction Reports Act (FTRA) directing VASPs to register and adhere to AML regulations.
In 2021, all crypto service providers had to register with the Korean Financial Services Commission and comply with AML obligations. In South Korea, virtual assets are considered “other income” for tax purposes, and gains are taxed at 20 percent on crypto trading profits.
In 2018, the Reserve Bank of India banned crypto trading of all sorts, but in 2020, the Indian Supreme Court removed the ban and clarified that there are no more prohibitions. Still, India remains on the fence regarding crypto regulation. All crypto investments are taxed at 30 percent, and a 1 percent tax deduction at source (TDS) is deducted on all crypto trades.
In short, crypto regulations are unclear, and investors don’t have much guidance. However, the digital version of the rupee might launch in 2023.
In 2019, the French National Assembly adopted the “Plan d’Action pour la Croissance et la Transformation des Entreprises (PACTE)”. It created a framework for all digital asset service providers.
The Financial Market Authority (AMF) has embraced new regulations for crypto service providers and ICOs. In 2020, an ordinance was issued to complement the country’s cryptocurrency regulations and in 2021, the regulations were finalized and implemented. Now, crypto firms have to register and adhere to stricter KYC regulations. They prohibited anonymous accounts and expanded AML/CFT and KYC obligations.
Portugal is seen as the most crypto-friendly country in Europe. The Portuguese tax authorities have clarified the legal status of cryptocurrency in a statement published in the Journal de Negocios. However, Portugal follows EU regulations.
In 2020, the country’s government announced a Digital Transition Action Plan, which had the 12 pillars of digitization and a flexible regulatory environment for testing technology and its development. Portugal’s non-habitual tax regime (NHR) attracts a lot of crypto traders as it allows for exemptions and reductions in tax.
On October 5, 2022, the European Council approved the comprehensive Markets in Crypto-Assets (MiCA) regulation. It is a significant step taken by the authors to make sure that the crypto market functions as per the rules.
This bill will have a massive impact on the crypto market due to its broad reach. Also, the MiCA bill plans to bring the asset class under the tight supervision of the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA).
It addresses many areas, such as consumer protection, money laundering, the industry’s environmental impact, crypto company accountability, and stablecoins. The MiCA regulations are definitely a milestone for the crypto market, as such an extensive set of regulations has never been seen.
How India Can Streamline Global Crypto Regulations
In 2023, India will host the annual G-20 summit, and Indian Finance Minister Nirmala Sitharaman will emphasize the importance of crypto asset regulation as an international priority, and it will be a major topic of discussion at the summit. According to the Finance Minister, no single country can succeed alone in trying to regulate crypto assets.
The crypto market is still in its infancy and evolving constantly. Therefore, a global regulatory framework is necessary to bring order to the crypto market. This will increase consumer confidence and create a safe space for useful innovation.
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