International Crypto Regulation – Around the World

Over the past few months we’ve written about how the regulatory approach to cryptocurrencies and crypto-assets in the UK and around the world is beginning to mature. Until recently, regulation of this sector was disorganized and very inefficient, but things are starting to change for the better, albeit slowly, and in different ways in each country. Here we will see how crypto regulation is changing in three regions of the world, including the US, Asia/Pacific, and the EU.

We have also transformed this content into an infographic that you can download here.

Regulation of cryptocurrencies in the United States

Cryptocurrency regulation still varies widely between US states, however, at the federal government level, progress is being made. Under the current regulatory structure in the United States, companies that trade cryptocurrencies must be registered with the Financial Crimes Enforcement Network (FinCEN) in order to trade. They must also put in place anti-money laundering and counter-terrorist financing (AML/CFT) measures and submit mandatory reports to supervisory authorities.

Signifying how important crypto regulation is at the federal level, in March 2022, US President Joe Biden announced a “whole-of-government” approach to crypto-asset regulation in a broad Executive Decree. This will force all federal departments and agencies to think about how they protect consumers and ensure financial stability and national security while addressing climate risks. Why was this announcement so crucial? The President’s statement includes the following words, “The United States must maintain its technology leadership in this rapidly growing space, supporting innovation while mitigating risks to consumers, businesses, the broader financial system, and the climate. And, it must play a leading role in international engagement and global governance of digital assets in accordance with democratic values ​​and the global competitiveness of the United States”. As such, this statement puts the world on notice that the United States is gearing up to become a global leader in crypto.

Cryptocurrency regulation in the Asia/Pacific region

China

It is well established that China has a global reputation for its strict cryptocurrency regulations. How hard? Consider that in 2021, 10 government authorities, including the People’s Bank of China (PBOC), jointly issued a statement to specify that:

  • virtual currency (cryptocurrency) is not legal tender
  • cryptocurrency trading activities are illegal
  • overseas cryptocurrency exchanges providing services to Chinese residents via the Internet are considered illegal financial activities.

Given the extremely stringent regulatory environment for crypto trading in China, this position is not expected to change in the short to medium term. That doesn’t mean the Chinese government won’t embrace cryptocurrency, though. China is expected to soon introduce its own central bank digital currency (CBDC) (called digital RMB or e-CNY), which is undergoing extensive testing. e-CNY was even used by foreign participants in the 2022 Winter Olympics in Beijing.

Australia

Compared to many other countries, cryptocurrency regulation is quite advanced in Australia. Cryptocurrencies and exchanges are legal in the country. Crypto exchanges wishing to trade in Australia must register and obtain approval from the Australian Transaction Reports and Analysis Center (AUSTRAC). AUSTRAC, like the FCA in the UK, is on a mission to prevent, detect and respond to criminal abuse of the financial system, including the crypto markets. Exchanges are therefore required to comply with strict AML and CFT regulations and reporting obligations. The Australian Revenue Authority (OTA) also clarified that disposal of cryptocurrency (i.e. sale, gift, exchange, conversion or use) may result in capital gains tax (CGT).

The Australian Securities and Investments Commission (ASIC) has also provided extensive information regulatory guidance for companies handling crypto-assets. This provides regulatory guidance on:

  • What to consider when offering crypto-assets
  • What is considered misleading or misleading behavior in relation to a crypto-asset or initial coin offering (ICO)?
  • When a crypto-asset or an ICO is considered a financial product
  • When a crypto-asset trading platform becomes a financial market

We expect Australian authorities to continue the rapid pace they have set in crypto-asset regulation, further tightening the rules for crypto exchanges and potentially becoming a world leader in this area.

Cryptocurrency regulations in the European Union

As a bloc of nations overseen by Brussels, EU countries are not allowed to establish their own cryptocurrencies like many other countries do. The use of cryptocurrencies is legal across the EU, but there is no consistent picture when it comes to crypto exchanges. Crypto exchanges are required to register and obtain approval from state-level regulators before they can trade. Helpfully, when an exchange obtains authorization in an EU country, the trading rights are effectively protected by a passport, allowing them to operate throughout the EU. Cryptocurrency exchanges are required to adhere to the strict requirements of 6AMLD (the European Anti-Money Laundering Directive).

The EU is currently working on a new set of crypto regulations to take advantage of the potential gains while mitigating the risks it poses. The Crypto-Asset Markets Regulation (MiCA) was introduced in 2020 to provide a regulatory basis for crypto-asset markets to develop within the EU where existing financial regulatory models could not be used. Negotiations are currently underway on the final shape of these crypto regulations with the various EU countries. This includes a new regulatory approach for licensing issuers of crypto-assets, rules of conduct for those who trade in crypto, and updated consumer protections.

Last words

This article only covers the “tip of the iceberg” of crypto regulation around the world. What is remarkable is the difference in approach and the degree to which crypto is seen as a strategic priority and a threat to be controlled in many countries. It will be interesting to see how countries and blocs adapt their thinking as other countries refine their positions.

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