We generally regard crypto as the currency of the future as it continues to evolve through various developments that have heightened its importance in the global economy. As a result, we saw an increase in legislative efforts by governments to cement their authority in the crypto economy booming within their territory. Perhaps, this is not all that bad since we have always expected that crypto would need to jump some legislative hurdles before attaining the prestigious mainstream status.
Also, the tendency of nefarious individuals to take advantage of the various functionalities of crypto and the unavailability of anti-money laundering laws governing crypto is one of the major reasons regulators are taking this issue seriously.
Anti-Money Laundering Laws And Crypto
In 2018, there was an explosion of legislation and directives that placed crypto under territorial and regional anti-money laundering laws. In Europe, Malta which is one of the global leaders in crypto regulation identified the influx of crypto firms in its territory and set out to establish crypto-specific regulations that would curb criminal activities. To achieve this, it established a newly formed regulatory body that would oversee crypto policies and work with other regulators in the nation in order to ensure the conformity of crypto-related firms to existing laws.
The same is true for the EU as the region which has previously relied on state members’ take on crypto regulations, agreed on new legislation that subjects crypto exchanges in this region under EU’s anti-money laundering laws. Also, the implementation of this regulation means that they are to comply with standard KYC and AML rules. Surprisingly, indications show that the UK will implement this regulation regardless of the Brexit issue. Apart from this, the nation is setting up separate regulations that will focus on the risks that come with cryptocurrency and that would protect investors.
As expected, the US is also jumping on the anti-money laundering bandwagon and for the first time, federal regulators in the nation are combining resources in order to come up with regulations that will govern crypto-related investments and exchanges. The move which is expected to resolve the rocky relationship between crypto firms and regulators in the US should clarify some grey areas surrounding crypto in this region.
Estonia has had an AML/CFT legislation in place since 2017 and it clearly outlines requirements which include KYC and strict reporting rules. In Japan, regulators have decided on taking a stricter route to regulatory conformity after the nation was rocked by high profile crypto exchanges hacks in 2018. Now, crypto exchanges must submit the information of their board members and ascertain that they are not linked to money laundering activities and terrorism.
Crypto And Tax Laws
Another important legislative issue that is trending globally is the issue of crypto tax laws and governments have taken different approaches in ensuring that crypto profit-making activities are taxed. In the US, the IRS has released tax guidelines for crypto while others have simply subjected crypto under existing tax laws. Countries that fall into the latter category include Canada, Switzerland, Australia, and Singapore. in the UK however, regulators stated that the unique nature of crypto makes it impossible to subject them under existing tax laws and the parties and activities involved will determine the taxability. In addition, the losses and profits made from crypto transactions are under the country’s Capital gains tax.
Luxembourg shares the same sentiments with the UK as authorities have issued possible tax regulations that would depend on the type of transaction. On the other hand, countries like Russia have released tax regulations that solely govern cryptocurrency.
We have also witnessed an emergence of ICO regulations since the ICO boom that was recorded in 2017. You would recall that countries like China have out rightly banned ICO activities and although South Korea followed suit, it is possible that it legalizes the crowdfunding mechanism in the near future. In Canada and the US, regulators have classified cryptocurrencies as securities, therefore, startups must adhere to existing security laws. Also, Canada has provided a regulatory sandbox that would fintech startups with regulations for cases that falls outside existing regulatory schemes,
Malta is in a league of its own as it has a regulatory framework in place that solely caters to ICOs. The European Union has taken a strong stance on ICO and they implemented new rules that would ensure that startups and ICO-related firms comply with AML and KYC rules.
The Bottom Line
The explosion of crypto regulations is a sign that governments are beginning to take crypto seriously as many of these regulations are shedding light to grey areas that have impeded the growth of crypto in some regions. Also, these developments ensure that crypto investors are shielded from fraudulent and risky investments that had one time plagued the crypto space.
We expect more of these regulations in 2019, especially on issues concerning crypto custodial solutions and the legality of crypto in regions that have hostile regulations.