Cryptocurrencies have caused major shifts in regulatory landscape. Governments and regulators across the globe are grappling with how best to balance encouraging innovation while safeguarding investors.
FinCEN in the U.S. is mandating that cryptocurrency exchanges register as money transmitters and comply with anti-money laundering regulations, while also amending Bank Secrecy Act regulations to include virtual currency transactions.
United States residents continue to debate how best to regulate cryptocurrency and blockchain technology. Some states have passed laws exempting cryptocurrencies from state securities and money transmission statutes; other have taken more cautious approaches. Until recently, however, federal regulation had been somewhat scarce, though recently an Executive Order (EO) outlining an approach towards digital assets and blockchain spaces was published; its focus being consumer/investor protection, financial stability, illicit finance regulation issues as well as responsible innovation practices.
Anti-money laundering and countering the financing of terrorism (AML/CFT) requirements for virtual currencies is one of the primary challenges facing the US. Most crypto transactions take place outside of the country, making law enforcement efforts challenging to track. The Treasury Department has made progress by sanctioning exchanges to block access for criminals seeking illicit profits.
However, it should be kept in mind that while these efforts have reduced criminals’ access to funds, they haven’t completely eliminated it – this demonstrates why stricter cryptocurrency regulation remains necessary; New York state recently passed a bill mandating virtual currency businesses obtain a BitLicense and thus increase transparency and safeguard investors against fraudulent activity.
Japan was among the earliest adopters of Bitcoin and blockchain technology, becoming an early hub for mining cryptocurrencies like bitcoins and creating exchanges. Following Mt Gox and Coincheck hacks, Japan’s Financial Services Agency (FSA) amended their Payment Services Act (PSA) to regulate crypto-related transactions; exchanges must now maintain minimum capital requirements of 10 million yen while providing customer support information and business models; additionally the FSA may tighten up record keeping standards further.
Exchanges must maintain separate accounts for customer assets and their own, and conduct annual audits of their record-keeping systems to safeguard customer funds. Furthermore, 95% of customer funds must be stored offline – in cold wallets not connected to the internet – so as to prevent potential theft of these funds by hackers or cyber attackers.
The Financial Services Authority (FSA) encourages financial institutions to adopt risk-based approaches, implement stringent Know Your Customer (KYC) procedures and appoint compliance officers for AML systems. In addition, the JVCEA serves as an official self-regulatory organization which regulates exchange providers. Their guidelines on selling, purchasing, exchanging virtual assets; acting as intermediaries and managing crypto asset assets on behalf of others help safeguard Japan’s financial institutions, investors and national welfare while contributing towards building an healthy ecosystem.
European nations have taken varied approaches in drafting comprehensive crypto regulations. But many share one important trait in common: They have increased oversight over crypto activities for purposes of anti-money laundering and countering terrorist financing.
This week, the European Parliament voted to create a standardized set of regulations across its 27 member bloc. The Markets in Crypto-Assets regulation, or MiCA, would establish requirements on crypto trading platforms, custodians and other companies providing services to this industry. Furthermore, it requires European Securities and Markets Authority to establish a public register of non-compliant providers as well as significant service providers disclosing energy consumption so as to decrease carbon footprint associated with these operations.
The new rules include measures to prevent market manipulation and money-laundering. They would require that when any crypto-asset transfer takes place, information regarding sender and beneficiary be recorded – thus ending anonymity that has often been associated with cryptos.
These rules also include provisions to regulate stablecoins, which are cryptocurrency tokens designed to maintain a fixed value by linking other values or currency deposits, with other values or deposit currencies. Such efforts could help stem the tide of volatility that has beset the industry in recent months – most notably with FTX’s demise and TerraUSD’s failure last month, both which caused over $40 billion worth of investor funds to vanish overnight.
Singapore, an established global hub of cross border commerce, is taking an innovative approach to cryptocurrency regulation. While most nations restrict or prohibit cryptocurrency trading entirely, Singapore has created an open but pragmatic regulatory environment. The Monetary Authority of Singapore (MAS) issued two consultation papers outlining measures which will be added into their Payment Services Act for inclusion into these measures aimed at minimizing consumer harm caused by speculation in cryptocurrencies and stablecoins by providing an open but transparent framework for conducting activities related to them.
The PSA requires digital payment token service providers to obtain a license and comply with stringent anti-money laundering (AML) and countering financing of terrorism (CFT) requirements. Furthermore, all VASPs must implement an internal mechanism to report suspicious transactions as well as regularly providing reports to MAS for review. Furthermore, VASPs are required by law to safeguard client assets against unauthorised access at all times.
The High Court decision in ByBit Fintech Ltd v Ho Kai Xin and others  SGHC 199 provides clarity that crypto assets such as USDT are recognised in common law as property, and may even be held on trust. This marks a step toward greater clarity regarding other aspects of law pertaining to cryptocurrency and non-fungible tokens (NFTs), alleviating fears among investors that such assets are not protected under existing laws.