US
Cryptocurrency regulations in the United States have been evolving rapidly in recent years. The Securities and Exchange Commission (SEC) has declared that cryptocurrency and digital assets are securities subject to regulation under the Securities Exchange Act of 1934.
It also requires companies dealing with cryptocurrencies to register with the SEC as a broker-dealer, alternative trading system (ATS), or transfer agent, and has recently issued warnings to investors to beware of accessing crypto services from companies not registered with the regulator. US-based companies that use Initial Coin Offerings (ICOs) to fund their businesses must also comply with federal securities regulations, including registering their ICOs with the SEC.
Additionally, exchanges offering certain types of digital assets must register with FinCEN as a money services business. Individual states have also started to regulate certain crypto-related activities. Several states require licenses for money transmission while others have prohibited cryptocurrency mining within their borders. Many states are also implementing laws requiring know your customer (KYC) and anti-money laundering (AML) procedures for those engaging in virtual currency activities.
EU
The European Union (EU) is taking an increasingly sophisticated approach to cryptocurrency regulation, with the overall goal of protecting investors and preventing money laundering. In pursuit of this goal, the bloc has implemented various regulatory requirements, such as requiring cryptocurrency companies to register with regulators and apply for authorization from relevant national authorities.
The EU also requires cryptocurrency companies to comply with AML laws and KYC policies, and crypto businesses need to demonstrate a clear and concerted effort to ensure that their products and services are not used for any illegal or fraudulent activities.
The European Securities and Markets Authority has proposed rules on ICOs, compelling ICO issuers operating in the bloc to comply with existing financial regulations. The EU’s 6th Anti-Money Laundering Directive (6AMLD) was first introduced in December 2020, but has subsequently been strengthened by a July 2022 AML/CTF legislative package adopted by the EU Commission.
This has effectively expanded on AMLD6’s robust directives for combating money laundering and terrorist financing using virtual assets. In addition to requiring Member States to maintain records on cryptocurrency users and transactions above certain thresholds, AMDL6 has expanded criminal liability for offenses to legal persons such as companies, as well as the list of potential financial crimes that can be realized — in particular through digital transactions.
UK
The United Kingdom has established a number of laws and regulations related to cryptocurrency. In the UK, any activity involving cryptocurrencies must comply with the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017. This includes activities such as buying, selling, exchanging or holding digital assets. Additionally, activities that involve providing services for the exchange of crypto assets for fiat currency must be authorized by the Financial Conduct Authority (FCA).
In terms of taxation for cryptocurrency transactions, any profits made from trading crypto assets are subject to capital gains tax in the UK. Mining income is also considered taxable income and subject to income tax. Cryptocurrency gained through mining can also be subject to corporation tax if it is done through a business venture.
Businesses that handle cryptocurrencies are expected to adhere to the UK’s existing AML regulations, which include customer due diligence requirements such as conducting effective KYC. Companies must also ensure that they have appropriate measures in place to identify suspicious activity and report any suspected money laundering or terrorist financing activity on their platforms.
Japan
Japan has established itself as a pioneer in crypto adoption and regulation, having consistently sought ways to accommodate crypto in a safe environment. In April 2017, the country recognized cryptocurrency’s purchasing power — without classifying it as legal tender — and introduced laws to regulate its use. The regulations established by the Financial Services Agency (FSA) are designed to ensure consumer and investor safety, combat money laundering, and provide clarity for businesses engaging in cryptocurrency-related activities.
FSA crypto regulations include registration requirements for crypto exchanges, capital adequacy requirements for operators, internal control systems, customer asset protection measures, system security audits, prevention of insider trading and market manipulation. Additionally, FSA requires exchanges to provide clients with adequate risk disclosure materials. Financial institutions are also not allowed to deal in cryptocurrencies unless they comply with stringent AML regulations.
To further protect investors from fraudulent activities, Japan also enacted a payment services law that requires virtual currency exchange operators to register with the FSA and obtain a license before operating on the Japanese market. All these measures show that Japan is taking proactive steps towards creating an environment that fosters innovation while providing much needed consumer protections and safeguards against digital currency risks.
India
Cryptocurrency regulations in India have been a topic of heated debate for several years, as the country grapples with how best to navigate the rapidly growing digital asset industry. In April 2018, the Reserve Bank of India (RBI) issued a circular prohibiting banks and financial institutions from providing services for cryptocurrency transactions; however, this ruling was overturned by the Supreme Court in March 2020.
The RBI has also expressed that it is exploring a framework that will regulate cryptocurrencies under its purview and ensure that these digital assets are treated at par with other payment systems. Several ministries within the Indian government are said to be working on a bill — known as the Cryptocurrency Bill 2021 — to ban private cryptocurrencies while introducing legal tender status for an official digital rupee. The Securities and Exchange Board of India (SEBI) has also expressed plans to introduce rules and regulations governing Initial Coin Offerings (ICOs).
Apart from regulations, there are also several tax implications associated with cryptocurrency trading in India. As per current laws, any capital gains generated through trading cryptocurrencies must be declared as income and taxed accordingly. Additionally, businesses transacting in virtual currencies must pay Goods & Services Tax (GST) on any profits earned from such activities.
Despite some regulatory ambiguity, cryptocurrency adoption continues to grow in India as people become more aware of the potential benefits of these new digital assets. It is expected that further regulations will be introduced in the near future to provide greater clarity around digital currency usage in the country.
Australia
Cryptocurrency regulations in Australia are in place to create a secure, credible and innovative environment for the digital currency. The main regulatory body in Australia is the Australian Transaction Reports and Analysis Centre (AUSTRAC). AUSTRAC is responsible for regulating digital currency exchanges, monitoring transactions and ensuring compliance with AML and CTF legislation. Other regulatory bodies such as ASIC, ACCC and ABA are also involved in regulating cryptocurrency activities.
In April 2018, AUSTRAC introduced a new set of rules which required digital currency exchanges to register with the agency and adhere to Anti Money Laundering (AML) and Counter Terrorism Financing (CTF) obligations. These requirements include customer identification procedures, reporting suspicious transactions and keeping records of all customer activities related to cryptocurrencies.
Australia has also implemented a number of measures to protect consumers when dealing with cryptocurrency exchanges. This includes reducing risks associated with price volatility by introducing an ‘investor protection framework’ which requires exchanges to protect customers against risks associated with fraud or hacking. Additionally, the government has established consumer protection guidelines providing guidance on how customers should use cryptocurrency services safely.
The government is committed to creating a safe ecosystem for cryptocurrencies in Australia while also safeguarding investor rights and interests. In August 2022, the Australian government announced that it would be initiating wide-ranging consultations with stakeholders in the digital asset industry in order to develop a new crypto regulatory framework. The intention is for this framework to ultimately balance the need for innovation within the digital currency industry with effective regulations that protect investors from financial loss due to fraud or other malicious activities.
China
In China, cryptocurrency is heavily regulated. The People’s Bank of China (PBOC) declared that all forms of cryptocurrency, including Bitcoin, are not legal tender in the country and all related activities such as trading, issuance and fund-raising should be stopped. In addition, other financial institutions have been prohibited from providing any services related to virtual currencies.
Despite the ban, Chinese citizens remain active participants in the global cryptocurrency market through offshore exchanges. However, some risk still exists since offshore exchanges in regions like Hong Kong may still be subject to Chinese laws.
To further strengthen its stance on cryptocurrencies, China has adopted a number of measures against local crypto-related activities. For example, domestic online media outlets are prohibited from publishing any content related to digital currency price speculation. Individuals and companies are also forbidden from engaging or participating in ICOs. Similarly, financial institutions are banned from offering any virtual currency-related services and products — or accepting deposits derived from such services or products for investors or customers.
Even though Chinese regulations on cryptocurrency have had an effect on the global market, it seems that these regulations have been mostly successful at curbing domestic crypto-related activities while encouraging local Chinese crypto investors to seek alternatives abroad.
Hong Kong
Hong Kong has taken a pragmatic approach to regulating crypto assets, with the aim of balancing consumer protection and innovation.
The Securities and Futures Commission (SFC) is responsible for regulating securities, futures contracts, and other related products in Hong Kong that involve crypto assets. The SFC has implemented a set of measures to ensure that licensed intermediaries comply with the relevant requirements when dealing in crypto assets.
In addition, the SFC has established an Investor Education Centre to provide investors with information about the risks and rewards associated with investing in crypto assets. It has also recently published a Consultation Paper outlining proposals and ideas for more comprehensive and flexible regulation of the virtual asset space.
As part of its regulatory framework, the HK authorities also require exchanges to register as Money Service Operators (MSOs). All MSOs must comply with applicable AML and CTF regulations. Furthermore, while Bitcoin and similar digital tokens are not considered legal tender in Hong Kong, they may be traded on approved securities markets or over-the-counter platforms subject to due diligence checks by intermediaries.
Singapore
Cryptocurrency regulations in Singapore are largely defined and enforced by the Monetary Authority of Singapore (MAS). The MAS has sought to create a framework for digital payment token services, which includes licensing requirements for cryptocurrency business operators.
Under the Payment Services Act 2019, businesses providing digital payment token services must be licensed by MAS. These activities include cryptocurrency trading platforms, exchanges, ICO issuers, funds dealing with digital tokens, and providers of custodial wallets.
The MAS is also responsible for regulating AML and CTF issues related to cryptocurrency activities in Singapore. Virtual asset service providers must implement AML/CTF measures such as customer due diligence and KYC checks.
There are also some tax regulations associated with cryptocurrency activities in Singapore. For example, gains from buying and selling cryptocurrencies may be subject to taxation under certain circumstances. Digital payments using cryptocurrencies will also need to adhere to existing goods and services tax guidelines as set out by the Inland Revenue Authority of Singapore (IRAS).
Overall, the regulatory landscape surrounding cryptocurrency activities in Singapore is relatively friendly yet tentative; aimed at providing protection from illicit activities while encouraging innovation within the space.
Latin America
Cryptocurrency regulations in Latin America are largely unexplored and varied. Although there have been some developments regarding crypto legality, the lack of unified legislation across countries makes it difficult to predict the future of the industry in the region as a whole.
In Mexico, the government has adopted a friendly stance towards cryptocurrencies. Under Mexican law, cryptocurrencies are defined as ‘virtual assets’ and are broadly regulated by the Law Regulating Financial Technology Institutions (Ley para Regular las Instituciones de Tecnología Financiera) or ‘the Fintech Law’, introduced in May 2021.
In Brazil, the government has shown more caution towards cryptocurrencies. While they haven’t directly banned them, they have implemented strict KYC and AML requirements to prevent money laundering activities involving digital assets. The Central Bank also issued warnings against using cryptocurrencies for trading activities without proper authorization.
Meanwhile in Colombia, there is currently no specific legislation in place for cryptocurrencies — however, the government is open to developing an appropriate legal framework in order to ensure transparency and accountability when dealing with digital assets. Last year, it introduced a ‘sandbox’ to test a potential crypto regulatory framework, though it is unclear when any potential law would actually be introduced.
Overall, despite some governments taking steps towards regulating cryptos in Latin America, much work still needs to be done before unified legislation is put in place for digital assets across all countries in the region. Until then, businesses and individuals must take extra caution when engaging in any transactions involving cryptocurrencies since laws may vary heavily from country to country.
BVI
In 2022 the The British Virgin Islands (BVI)’s legislative body, the Financial Services Commission (FSC), recently introduced the Virtual Asset Service Providers Act, 2022 (VASP Act) in order to establish more clarity on the territory’s approach to virtual asset regulation.
This has reinforced the BVI’s reputation for a comprehensive regulatory framework regarding both the traditional financial sector and digital assets. The territory’s updated guidance on crypto provides a roadmap for both individuals and businesses operating within BVI. According to the FSC, Virtual Asset Service Providers (VASPs) must comply with AML laws and establish sufficient governance processes related to cryptocurrency operations.
Businesses are required to register with the FSC as a Digital Asset Business before launching cryptocurrency-related activities such as trading, exchange services, providing custodial wallet services, issuing digital assets such as tokens, or facilitating payments through digital assets. Furthermore, companies must have adequate operational procedures in place to ensure compliance with all relevant laws and regulations. This includes measures such as conducting customer due diligence checks and reporting suspicious transactions.
In addition to AML requirements, BVI’s crypto regulations include specific requirements related to VASPs. Companies providing services related to the transfer of digital assets between two different parties need to obtain an appropriate license from the FSC. To be eligible for a VASP license, entities must meet certain criteria related to their business operations and approach towards risk management.
UAE
The United Arab Emirates (UAE) is ahead of the curve when it comes to crypto regulations. In 2022, the UAE’s Central Bank established the Virtual Asset Regulatory Authority (VARA), which develops and sets out clear guidelines and regulations for businesses dealing in virtual assets. The authority effectively acts as the UAE’s dedicated virtual asset regulator.
VARA requires businesses to be registered with the Central Bank, have sufficient capital and liquidity, comply with AML/CTF regulations, provide customer due diligence measures, secure customers’ funds and protect customer data and privacy.
Licensed firms need to also adhere to certain competency requirements such as having trained staff who are able to effectively deal with virtual asset transactions. This has created a robust and transparent framework for individuals and organizations looking to use and work with cryptocurrencies and other digital assets.
Conclusion
As governments around the world start to better understand crypto and its potential implications and applications for their economies and societies, it is inevitable that more nuanced and complex regulation will be implemented to manage their use. Here at KYC-Chain, we are constantly adapting our automated KYC technology to meet the diverse and evolving regulatory requirements around the world — so that our clients don’t have to.
Are you looking for an end-to-end KYC onboarding solution for your crypto company? Get in touch and we can show you how we make it happen.
