International Crypto Regulation – Around the World

In recent months we have written about how the regulatory approach to cryptocurrencies and cryptoassets in the UK and around the world is starting to mature. Until recently, the regulation of this sector has been disorganised and highly ineffective, but things are beginning to change for the better, albeit slowly, and in different ways in each country. Here will take a look at how crypto regulation is evolving in three geographies around the world, including the United States, Asia/Pacific, and the EU.

We’ve also turned this content into an infographic that you can download here.

Cryptocurrency regulations in the United States

Cryptocurrency regulation still varies considerably between US states, however, at the federal government level, progress is being made. Under the current regulatory structure in the US, businesses exchanging cryptocurrencies must be registered with the Financial Crimes Enforcement Network (FinCEN) in order to trade. They must also have Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) measures in place and submit mandatory reports to oversight authorities.

Signifying just how important crypto regulation is at the federal level, in March 2022, US President Joe Biden announced a “whole-of-government” approach to the regulation of cryptoassets in a vast executive order. This will force all federal agencies and departments to consider how they protect consumers and ensure financial stability and national security while addressing climate risks. Why was this announcement so pivotal? The President’s statement includes the following words, “The United States must maintain technological leadership in this rapidly growing space, supporting innovation while mitigating the risks for 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 consistent with democratic values and US global competitiveness”. As such, this statement puts the world on notice that the US is preparing to become a world leader in crypto.

Cryptocurrency regulations in the Asia/Pacific region

China

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

• virtual currency (cryptocurrency) is not legal tender
• cryptocurrency business activities are illegal
• cryptocurrency exchanges from overseas providing services to Chinese residents through the internet are deemed illegal financial activities.

Given the extremely harsh regulatory environment for crypto trading in China, there is no expectation that this position will change in the near or medium-term future. This does not meant that the Chinese government will not embrace cryptocurrency, however. China is soon expected to introduce its own Central Bank Digital Currency (CBDC) (the so-called digital RMB or e-CNY), which is undergoing extensive testing. e-CNY was even used by overseas attendees of the 2022 Winter Olympics in Beijing.

Australia

Compared to many other countries, cryptocurrency regulation is fairly advanced in Australia. Cryptocurrencies and exchanges are both legal in the country. Crypto exchanges that wish to trade in Australia must register with and gain approval from the Australian Transaction Reports and Analysis Centre (AUSTRAC). AUSTRAC, like the FCA in the UK, has the task of preventing, detecting and responding to criminal abuse of the financial system, including crypto markets. Exchanges are, therefore, required to adhere to strict AML and CFT regulations and reporting obligations. The Australian Tax Office (OTA) has also made it clear that the disposal of cryptocurrency (i.e. selling, gifting, trading, converting, or using) may attract capital gains tax (CGT).

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

• What should be considered when offering crypto-assets
• What is considered misleading or deceptive conduct in relation to a crypto-asset or an 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 the Australian authorities to continue the rapid pace they have set when it comes to cryptoasset regulation, further tightening the rules for crypto exchanges and potentially becoming something of a world leader in this space.

Cryptocurrency Regulations in the European Union

As a bloc of nations overseen by Brussels, countries in the EU are not permitted to establish their own individual cryptocurrencies in the way that many other countries are. 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 gain approval from state le level regulators before they can trade. Usefully, where an exchange gains authorisation in one EU country, the rights to trade are effectively passported, allowing them to operate across the EU. Cryptocurrency exchanges are required to adhere to the strict requirements of 6AMLD (the EU anti-money laundering directive).

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

Final words

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