The AFM and the Dutch Central Bank (De Nederlandsche Bank, DNB) consistently urge market parties to prepare for the forthcoming implementation of DORA. DNB underscores that while certain requirements are still not final, market participants should have initiated preparations for DORA implementation. DNB lists a number of steps that market parties can already take to ensure timely compliance with DORA, which includes performing a gap analysis and developing an activity plan. The AFM has published two guides that should assist market parties on becoming ‘DORA-proof.’ These guides provide, among other things, that financial institutions should begin assessing their IT-risk management framework and strategy and get started on an information register, exit strategy and a review of contractual arrangements.
Bitcoin is not legal tender in Brazil, but the country passed a law legalizing cryptocurrencies as payment methods throughout the country, boosting the adoption of digital currencies. Brazil’s Chamber of Deputies approved a regulatory framework legalizing the use of cryptocurrencies as a means of payment in the country on Nov. 29, 2022. The country has been working on several aspects when it comes to regulation, including taxation. In September 2022, the government announced it would introduce remittance rules as early as May 2023 to prevent criminals from using cryptocurrency exchanges to launder money.
Crypto assets in the UK: Navigating opportunities and challenges in a dynamic landscape
Canada became the first country to approve a Bitcoin exchange-traded fund (ETF), with several trading on the Toronto Stock Exchange. But in 2023, a district court of appeals decided that Ripple’s sale of XRP were securities offerings only when sold to institutions, not when they were sold on exchanges. This was one partial victory for the crypto industry—it was followed by another decision in November that vacated the Commission’s denial of Grayscal’s application to convert its Bitcoin ETF Trust to an ETF that holds bitcoin. The court ordered the Commission to re-review the application, which eventually led to the approval of the first Bitcoin Spot ETFs in January 2024. «I look forward to our continued work with the sector in making our vision a reality for the UK as a global hub for cryptoasset technology.» The crypto industry, meanwhile, has complained of delays and poor feedback from the FCA, while recently introduced rules restricting crypto promotions have led some well-known firms to cut U.K.
- But both will be considered in any go-to-market strategy for a company that works in blockchain and cryptoassets.
- While there are benefits to each of the existing regulations, they are part and parcel of a system of rules that is too complex and therefore does a disservice to UK citizens, Dr Paolo Tasca writes.
- Although investors still pay capital gains tax on crypto trading profits, more broadly, taxability depends on the crypto activities undertaken and who engages in the transaction.
- Meanwhile, the crypto sector remains large unregulated, according to a recent report by the Financial Action Task Force (FATF) showing that under 30% of the world’s jurisdictions are regulating the industry.
- Stablecoins are designed to address the volatility and scalability issues of other crypto assets, such as Bitcoin and Ethereum and to facilitate the use of crypto assets for everyday transactions and payments.
FSMA and the onshored UK Prospectus Regulation require firms to make available an approved prospectus to the public, before (i) transferable securities are offered to the public, or (ii) a request is made for transferable securities to be admitted to a regulated market situated or operating in the UK. INQUIRY FINDINGS AND FULL REPORT The APPG published the findings of this inquiry in its report – ‘Realising Government’s Vision for the UK to Become a Global Hub for Cryptocurrency & Fintech Innovation’ on Monday 5th June 2023. Look no further than the vast array of crypto companies based in the Bahamas, Switzerland, and Japan for proof of regulatory clarity benefiting national economies.
United States
Cryptocurrency regulations in UK have been measured, but have matured in the post-Brexit financial landscape. Although the UK confirmed in 2020 that crypto assets are property, it has no specific cryptocurrency laws and cryptocurrencies are not considered legal tender. This order extended the financial promotion regime to cover certain types of crypto assets, such as unregulated tokens, stablecoins and NFTs. This means that firms that wish to promote these crypto assets in the UK to retail consumers must, by law, be authorised or registered by the FCA or have their marketing approved by an authorised firm. The order also introduced a time-limited exemption for FCA-authorised crypto asset firms to issue their own promotions, subject to certain conditions and safeguards.
It takes a careful read of committee recommendations and press clips to genuinely understand the state of the union on cryptoassets. This “altogether will aim to minimize potential for customer harm and mitigate the conduct, prudential and financial stability risks arising from those stablecoins, particularly when used for payments,” the government said in its announcement. Singapore, in part, gets its reputation as a cryptocurrency safe haven because long-term capital gains are not taxed. However, the country taxes companies that regularly transact in cryptocurrency, treating gains as income.
Governments- Handicapped in Regulating the Cryptocurrency Market After More than Decade.
Meanwhile, the Financial Services Regulatory Authority (the FSRA) which regulates financial services in the Abu Dhabi Global Market (the ADGM) continues to attract blockchain infrastructure players given its already tried-and-tested regime. The ADGM Registration Authority also published a framework governing distributed ledger technology (DLT) foundations in order to attract blockchain foundations and decentralized autonomous organizations (DAOs). We expect that the ADGM will continue to attract key blockchain infrastructure players, particularly those focused on tokenization, as well as those looking to explore use cases for DLT foundations. This notably includes a proposed regulation on the establishment of a digital euro (Digital Euro Proposal) and a proposed regulation on a framework for financial data access (Open Finance Proposal). The former proposal, if adopted, will set out a framework for a possible future adoption of the digital euro, but it would be up to the European Central Bank (ECB) to decide if and when to issue the digital euro. In October 2023, the Governing Council of the ECB decided to conclude the investigation phase and to move to the next phase of the digital euro project, which is the preparation phase.
Non-UK-domiciled individuals are, subject to exceptions, subject to taxation of any assets held and situated in the UK. The FCA has stated that it will consider the commercial element, commercial benefit, the relevance to other business by the relevant firm, and the regularity/frequency of activities as factors impacting its decisions on whether cryptoasset activity is carried on. Those marketing cryptoassets are also required to comply with the CAP Code and the Advertising Standards Authority (the ASA) guidelines. In addition to the RAO and MLRs, the advertisement of certain products or activities, where they are aimed at or are otherwise “capable of having an effect in the UK”, may be subject to certain restrictions set out in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the FPO). This will depend on whether the product or activity falls within the definition of “controlled investment” or “controlled activity” in section 21 of the Financial Services and Markets Act 2000 (FSMA) (which prohibits unauthorised financial promotions). In early January 2024, New York Governor Kathy Hochul unveiled a sweeping consumer protection agenda, one of the first planks of her 2024 State of the State.
Reporting requirements
There is a 30% tax levied on all crypto investments and a 1% tax deduction at source (TDS) on crypto trades. Singapore issued guidance in 2022 warning digital payment token (DPT) providers to avoid advertising their services to the public. The Monetary Authority of Singapore (MAS) licenses and regulates exchanges as outlined in the Payment Services Act (PSA). While crypto is not considered legal tender in Canada, the country has been more proactive than others about crypto regulation.
The UK’s regulatory regime for crypto assets is currently undergoing significant changes, as the government and the regulators are implementing new legislation, guidance and rules to address the emerging risks and opportunities posed by crypto assets. That said, in practice, MiCA’s application will be phased in over time – at least in some Member States – thanks to transitional requirements that include a time-limited grandfathering regime for those crypto asset service providers providing their services in accordance with national law before December 30, 2024. Which EU jurisdictions will allow such transitional provisions will become clearer towards the end of the first half of the year as Member States have until June 30, 2024 to notify the European Commission whether they will exercise this option.
Likewise, with the Customer Due Diligence (CDD) procedures, customers’ risks are determined, and precautions are taken according to these risks. Such measures aim to comply with anti-money laundering and terrorism financing regulations in crypto businesses. In the UK, the FCA has the authority to permit the operation of an exchange that enables trading crypto-assets under the Markets in Financial Configuration Management Activity Instruments Directive II (MiFID II). Accordingly, businesses in the jurisdiction of FCA must comply with its crypto asset regulations. Partial regulation exists in some countries, with others taking steps to regulate as much of the space as possible. As digital currencies gain traction and popularity,
understanding the regulatory framework governing these assets becomes
paramount.
The Travel Rule requires crypto companies to obtain information from the sender and receiver of crypto assets and share it with counterparty crypto asset service providers. The MLRs apply to businesses identified as being most vulnerable to the risk of being used for money laundering and terrorist financing purposes. In-scope businesses are referred to as “relevant persons”, as listed in regulation 8(2) and (3).
When reviewing license applications, the AFM will focus on the scope of the authorization, governance, outsourcing, segregation of funds and crypto assets, information to clients, risk management and compliance (including compliance with the Digital Operational Resilience Act, DORA). The AFM anticipates that a license application procedure will require a minimum of five months. The decision also acknowledges that there are no laws to unconditionally prohibit individuals or legal entities from receiving bitcoins in exchange for goods or services.
Crypto assets rely on complex and novel technologies, such as cryptography and DLT, which may pose technical and operational challenges for clients and the legal profession. For instance, crypto asset transactions may be irreversible, immutable and anonymous, which may limit the ability to recover funds or identify the parties involved in a dispute. Crypto assets may also be vulnerable to cyberattacks, system failures, or human errors, which may compromise the security and integrity of the crypto assets and the underlying platforms. The Joint Money Laundering Steering Group published guidance that further clarified how the MLRs relate to cryptoassets. The guidance highlights the AML risks relevant in the sector and considers how CEPs and CWPs should interpret the AML requirements in an appropriate manner relating to cryptoassets. The transfer of cryptoassets for the purposes of lending or staking triggers a capital disposal and potentially a “dry tax charge” under CGT rules.
