RiskTech Forum

ComplyAdvantage: Cryptocurrency Regulations Around The World

Posted: 10 August 2018  |  Source: ComplyAdvantage


As cryptocurrencies spread across the globe, so too do the regulations put in place to try and govern them. The landscape is constantly evolving and keeping up to date with the rules in different territories isn’t easy. To help you navigate the various legislative positions towards cryptocurrencies, and the activities associated with them, we’ve put together this guide. Learn how different nations approach coin and exchange regulation and if they have any upcoming legislation which could alter their approach to cryptocurrencies.

United States

Cryptocurrencies: Not considered legal tender
Cryptocurrency exchanges: Legal, regulation varies by state

It’s hard to find a consistent legal approach to cryptocurrencies in the United States. Laws governing exchanges vary by state, and federal authorities actually differ in their definition of the term ‘cryptocurrency’. The Financial Crimes Enforcement Network (FinCEN) doesn’t consider cryptocurrencies to be legal tender but since 2013 has considered exchanges as money transmitters (subject to their jurisdiction) on the basis that tokens are “other value that substitutes for currency”. The IRS, by contrast, regards cryptocurrencies as property – and has issued tax guidance accordingly.

Exchanges

Cryptocurrency exchange regulations in the United States are also in an uncertain legal territory, and several of the federal regulators claim jurisdiction. Of the major US regulatory bodies, the Securities and Exchange Commission (SEC) has indicated that it considers cryptocurrencies to be securities: in March 2018 it stated that it was looking to apply securities laws comprehensively for digital wallets and exchanges. By contrast, The Commodities Futures Trading Commission (CFTC) has adopted a friendlier, “do no harm” approach, describing bitcoin as a commodity and allowing cryptocurrency derivatives to trade publicly.

Future Regulation

The Justice Department is coordinating with the SEC and CFTC over future cryptocurrency regulations to ensure effective consumer protection and more streamlined regulatory oversight. The US Treasury has emphasized an urgent need for crypto regulations to combat global and domestic criminal activities and, in January 2018, Treasury Secretary, Steve Mnuchin, announced a new FSOC working group to explore the increasingly crowded cryptocurrency marketplace.


Canada

Cryptocurrencies: Not legal tender
Cryptocurrency exchanges: Legal, regulation varies by province

Cryptocurrencies aren’t legal tender in Canada but the Canada Revenue Agency has taxed them since 2013. Canada has been fairly proactive in its treatment of cryptocurrencies: back in 2014 it brought entities dealing in virtual currencies under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, while in 2017 the British Columbia Securities Commission registered the first cryptocurrency-only investment fund.

Exchanges

Cryptocurrency exchange regulations in Canada are inconsistent at the provincial level, but at the federal level, the authorities treat cryptocurrencies as securities. In August 2017, the Canadian Securities Administrators (CSA) issued a notice on the applicability of existing securities laws to cryptocurrencies, and in January 2018, the head of Canada’s Central Bank characterized them “technically” as securities.

Future Regulation

More regulation on crypto exchanges is on the way. In response to its mutual evaluation by FATF, Canadian authorities issued draft amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act in June 2018. The revised regulations will now include cryptocurrency exchanges – meaning those entities are subject to reporting obligations, and essentially regulated in the same way as Money Services Businesses.


Singapore

Cryptocurrencies: Not legal tender
Cryptocurrency exchanges: Legal, no registration required

In Singapore, cryptocurrency exchanges and trading are legal, and the city-state has taken a friendlier position on the issue than regional neighbors. Although cryptocurrencies are not considered a legal tender, Singapore’s tax authority treats Bitcoins as ‘goods’ and so applies Goods and Services Tax (Singapore’s version of Value Added Tax).

Exchanges

The Monetary Authority of Singapore (MAS) takes a relatively soft approach to cryptocurrency exchange regulations, applying existing legal frameworks where possible. In January 2018, however, MAS issued a press release warning the public of the risks of crypto speculation and Sopnendu Mohanty, MAS FinTech chief, indicated that further legislative steps would be needed in order for cryptocurrencies to continue to grow. Chief amongst MAS’ concerns is the need to ensure that cryptocurrencies are not used for money laundering, terrorist financing, or other financial crimes. In January 2018, Deputy Prime Minister Tharman Shanmugaratnam stated that cryptocurrencies are subject to the same AML and CFT measures as traditional, fiat currencies.

Future Regulations

MAS continues to keep a close eye on cryptocurrencies: in addition to potential additional AML/CFT measures, in March it was reported that the financial authority was working on more robust cryptocurrency regulations specifically to protect investors.


Australia

Cryptocurrencies: Legal, treated as property
Cryptocurrency exchanges: Legal, must register with AUSTRAC

Cryptocurrencies and exchanges are legal in Australia, and the country has been progressive in its implementation of cryptocurrency regulations. In 2017, Australia’s government declared that cryptocurrencies were legal and specifically stated that Bitcoin (and cryptocurrencies that shared its characteristics) should be treated as property, and subject to Capital Gains Tax (CGT). Cryptocurrencies had previously been subject to a controversial double taxation under Australia’s goods and services tax (GST) – the change in tax treatment is indicative of the Australian government’s progressive approach to the crypto issue.

Exchanges

In 2018, the Australian Transaction Reports and Analysis Centre (AUSTRAC) announced the implementation of more robust cryptocurrency exchange regulations. The new crypto regulations require exchanges operating in Australia to register with AUSTRAC, identify and verify users, maintain records, and comply with government AML/CFT reporting obligations. Going forward, unregistered exchanges will be subject to criminal charges and financial penalties.

Future Regulations

Australia has established a pattern of proactive cryptocurrency regulation. Beyond cryptocurrency exchanges, ICOs are also being scrutinized: guidelines from the Australian Securities and Investments Commission (ASIC), issued in 2017, advise that the natural structure of the tokens (security or utility) will determine their legal treatment under general consumer law and the Corporations Act.


Japan

Cryptocurrency: Legal tender
Cryptocurrency Exchanges: Legal, must register with the Financial Services Agency

Japan has the world’s most progressive regulatory climate for cryptocurrencies and, as of April 2017, recognizes Bitcoin and other digital currencies as legal tender under the Payment Services Act. Japan is the world’s biggest market for Bitcoin and, in December 2017, the National Tax Agency ruled that gains on cryptocurrencies should be categorized as ‘miscellaneous income’ and investors taxed at rates of 15%-55%.

Exchanges

Cryptocurrency exchange regulations in Japan are similarly progressive. Exchanges are legal in Japan, but after a series of high profile hacks, including the notorious Coincheck heist of $530 million in digital currency, crypto regulations have become an urgent national concern. Japan’s Financial Services Agency (FSA) has stepped up efforts to regulate trading and exchanges: amendments to the Payment Services Act now require cryptocurrency exchanges to be registered with the FSA in order to operate – a process which can take up to six months, and which imposes stricter requirements around both cybersecurity and AML/CFT.

Future Regulations

Japan remains a friendly environment for cryptocurrencies, but growing AML concerns are drawing the FSA’s attention to further regulatory steps. Following talks between exchanges and the FSA, an agreement to form a self-regulatory body – the Japanese Virtual Currency Exchange Association (JVCEA) – was put in place. The JVCEA will provide advice to as-yet unlicensed exchanges and promote regulatory compliance.


South Korea

Cryptocurrencies: Not legal tender
Cryptocurrency Exchanges: Legal, must register with FSS

In South Korea, cryptocurrencies are not considered legal tender and exchanges, while legal, are part of a closely-monitored regulatory system. Cryptocurrency taxation in South Korea is a grey area: since they are considered neither currency nor financial assets, cryptocurrency transactions are currently tax free, but the Ministry of Strategy and Finance is planning to announce a taxation framework in 2018, with taxation expected to be enforced in 2019.

Exchanges

Cryptocurrency exchange regulations in South Korea are strict and involve government registration and other measures overseen by the South Korean Financial Supervisory Service (FSS). Although a rumored ban never materialized, in 2017, the South Korean government prohibited the use of anonymous accounts in cryptocurrency trading, and also banned local financial institutes from hosting trades of Bitcoin Futures. In 2018, the Financial Services Commission (FSC) imposed tighter reporting obligations on banks with accounts held by crypto exchanges.

Future Regulations

In early 2018, South Korea’s Finance Minister revealed the government was planning to introduce more robust cryptocurrency regulations – but there are signs that the authorities’ stance towards the issue may be softening. In May 2018, Yoon Suk-heun took over leadership of the FSS: Yoon has spoken of the “positive aspects” of cryptocurrencies, and the need for exchanges to serve investors’ interests while complying with the regulation.


China

Cryptocurrencies: Not legal tender
Cryptocurrency exchanges: Illegal

The People’s Bank of China (PBOC) banned financial institutions from handling Bitcoin transactions in 2013, and went further by banning ICOs and domestic cryptocurrency exchanges in 2017. Unsurprisingly, China does not consider cryptocurrencies to be legal tender and the country has a global reputation for harsh cryptocurrency regulations.

Exchanges

Although domestic cryptocurrency exchanges are under a blanket ban in China, workarounds are possible using foreign platforms and websites which China’s internet firewall doesn’t catch. Despite the near-comprehensive prohibition on crypto trading and related services, the law in China currently still permits crypto mining activities – although there are signs that this could change soon.

Future Regulations

In January 2018, a leaked PBOC memo suggested that Bitcoin mining operations would soon be banned in China – the memo cited the miners’ consumption of energy resources and their tendency to stoke financial speculation. In February 2018, a joint effort by PBOC and the Ministry of Industry and Information Technology revealed plans to expand crypto exchange regulations to foreign exchanges, banning access both to offshore platforms and to ICO websites. Through the Institute of International Finance, the Chinese government has also expressed support for the implementation of a global regulatory framework for cryptocurrencies.


India

Cryptocurrencies: Not legal tender
Cryptocurrency exchanges: Effectively illegal – regulations being considered

Cryptocurrencies are not legal tender in India, and while exchanges are legal, the government has made it very difficult for them to operate. Although there is currently a lack of clarity over the tax status of cryptocurrencies, the chairman of the Central Board of Direct Taxation has said that anyone making profits from Bitcoin will have to pay taxes on them. Other Income Tax Department sources have suggested that cryptocurrency profits should be taxed as capital gains.

Exchange Regulations

Cryptocurrency exchange regulations in India have grown increasingly harsh. While technically legal, in April 2018 the Reserve Bank of India (RBI) banned banks and any regulated financial institutions from “dealing with or settling virtual currencies”. The sweeping regulation prohibited trade of cryptocurrencies on domestic exchanges – and gave existing exchanges until 6 July 2018 to wind down.

Future Regulations

India’s governments seem to be looking at the possibility of less prohibitive cryptocurrency regulations. In 2017, the Special Secretary of Economic Affairs formed a committee to suggest ways of dealing with the potential AML/CFT and consumer protection issues related to cryptocurrencies. In 2018, reports suggested that a government committee was drafting new legislation which introduced greater cryptocurrency protections for “the common man”.


UK

Cryptocurrencies: Not legal tender
Cryptocurrency exchanges: Legal, registration requirements with FCA

The United Kingdom’s approach to cryptocurrency regulations has been measured: although the UK has no specific cryptocurrency laws, cryptocurrencies are not considered legal tender and exchanges have registration requirements. HMRC has issued a brief on the tax treatment of cryptocurrencies, stating that their “unique identity” means they can’t be compared to conventional investments or payments, and their “taxability” depends on the activities and parties involved. Gains or losses on cryptocurrencies are, however, subject to capital gains tax.

Exchanges

Cryptocurrency exchanges in the UK generally need to register with the Financial Conduct Authority (FCA) – although some crypto businesses may be able to obtain an e-license, instead. Although it doesn’t make special provisions for exchanges, FCA guidance stresses that entities engaging in crypto-related activities which fall under existing financial regulations for derivatives (like futures and options) require authorization.

Future Regulations

In 2018, Bank of England Governor, Mark Carney, revealed that targeted cryptocurrency regulations for the UK are on the horizon. With a parliamentary inquiry ongoing, the FCA is working with the BOE and the UK Treasury to develop a strategy for dealing with cryptocurrency risks – specifically focusing on AML/CFT, and financial stability. The FCA will reveal new cryptocurrency guidelines in late 2018.


Switzerland

Cryptocurrencies: Legal, accepted as payment in some contexts
Cryptocurrency exchanges: Legal, regulated by SFTA

In Switzerland cryptocurrencies and exchanges are legal, and the country has adopted a remarkably progressive stance towards cryptocurrency regulations. The Swiss Federal Tax Administration (SFTA) considers cryptocurrencies to be assets: they are subject to the Swiss wealth tax, and must be declared on annual tax returns.

Exchanges

Switzerland imposes a registration process on cryptocurrency exchanges – which must obtain a license from the Swiss Financial Market Supervisory Authority (FINMA) in order to operate. Cryptocurrency regulations in Switzerland are also in place for ICOs: in February 2018, FINMA published a set of guidelines which applied existing financial legislation to offerings across a range of areas – from banking to securities trading and collective investment schemes (depending on structure).

Future Regulations

Moving forward, Switzerland’s government has indicated that it will continue to work towards a regulatory environment which is friendly to cryptocurrencies. In 2016, the town of Zug, a prominent global cryptocurrency hub, introduced Bitcoin as a way of paying city fees. In January 2018, Swiss Economics Minister Johann Schneider-Ammann stated that he was aiming to make Switzerland “the crypto-nation”. Meanwhile, the Swiss Secretary for International Finance, Jörg Gasser, has emphasized the need to promote cryptocurrencies without compromising existing financial standards.


The EU

Cryptocurrencies: Legal, member-states may not introduce their own cryptocurrencies
Cryptocurrency exchanges: Regulations vary by member-state

The EU Parliament has passed no specific legislation regarding cryptocurrencies. While cryptocurrencies are broadly considered legal across the bloc, cryptocurrency exchange regulations depend on individual member states. Cryptocurrency taxation also varies, but many member-states do charge capital gains tax on cryptocurrency-derived profits – at rates of 0-50%. In 2015, the Court of Justice of the European Union ruled that exchanges of traditional currency for cryptocurrency should be exempt from VAT.

Exchanges

Cryptocurrency exchanges are not currently regulated at a regional level. In certain member states, exchanges will have to register with their respective regulators such as Germany’s Financial Supervisory Authority (BaFin), France’s Autorité des Marchés Financiers (AMF), or Italy’s Ministry of Finance. Authorisations and licenses granted by these regulators can then ‘passport’ exchanges, allowing them to operate under a single regime across the entire bloc. In April 2018, the EU agreed on the text for the Fifth Money Laundering Directive (5MLD) which will bring cryptocurrency-fiat currency exchanges under EU’s anti-money laundering legislation. 5MLD will require exchanges to perform KYC/CDD on customers and fulfill standard reporting requirements.

Future Regulations

The EU is actively exploring further cryptocurrency regulations. In February 2018, European Central Bank president, Mario Draghi, stated authorities were working with the Single Supervisory Mechanism to develop a way of identifying the financial risks that cryptocurrencies pose.


Latin America

Cryptocurrencies: Laws vary by country
Cryptocurrency exchanges: Sparse regulation, laws vary by country

In Latin America, cryptocurrency regulations run the legislative spectrum. Amongst those countries with harsher regulation — Bolivia, for example — has comprehensively banned cryptocurrencies and exchanges, while Ecuador has issued a ban on the circulation of all cryptocurrencies apart from the government-issued “SDE” token. By contrast, in Mexico, Argentina, Brazil, Venezuela and Chile, cryptocurrencies are commonly accepted as payment by retail outlets and merchants. For tax purposes, cryptocurrencies are often treated as assets: they are broadly subject to capital gains tax across the region, while transactions in Brazil and Argentina are also subject to income tax in some contexts.

Exchanges

Cryptocurrency exchange regulations in Latin America are sparse: many countries have no specific laws governing the trade of cryptocurrencies and so, beyond the scope of existing legislation, do not regulate exchanges. Mexico regulates exchanges to an extent: the Law to Regulate Financial Technology Companies extends anti-money laundering (AML) laws to cryptocurrencies through registration and reporting requirements.

Future Regulations

Many Latin American countries have expressed concern about the effect of cryptocurrencies on financial stability, and their money laundering risks. Beyond issuing official warnings, however, financial authorities across the region are yet to reveal plans for any significant future cryptocurrency regulation.