Tightening Regulations Chipping Away at Crypto ‘Wild West’

U.K Financial regulators continue to pressure crypto businesses about their obligations. British authorities have even threatened forced closures for defaulters. Across the globe, financial watchdogs have brought down the hammer on the crypto market with a particular focus on anti-money laundering (AML) and combating the financing of terrorism (CFT). These measures have arrived in the form of strict compliance for user identity verification and other forms of know your customer (KYC) protocols. In the absence of a global crypto regulation standard, international organizations warn about the dangers of regulatory arbitrage. Within countries like the United States, the current patchwork of State and Federal laws are significantly different in their approach to policing digital assets.

FCA Sounds Registration Warning to Crypto Businesses

In a notice published on Monday, the U.K. Financial Conduct Authority (FCA) reminded crypto businesses of the June 30 deadline for registration. Since the start of 2020, the FCA took on the responsibility for regulatory oversight of cryptoasset companies in the country. According to the FCA’s statement, firms that began operating before January 10, 2020, have until the end of June to register with the financial watchdog or face forced shutdowns. As previously reported by BeInCrypto, the FCA introduced a two-tier registration fee structure for crypto businesses based on revenue. Firms with a net income below £250,000 will pay £2,000 while higher-earning cryptocurrency companies will pay £10,000.

We remind cryptoasset businesses to register before the end of June https://t.co/zMc1J5c10X #crypto #cryptocurrency #fintech pic.twitter.com/UjJYVKuYXe

— Financial Conduct Authority (@TheFCA) June 22, 2020

Over the last few months, the U.K. financial watchdog has been warning the public about companies operating without authorization in the country. The FCA also reportedly has a plan to ban crypto derivatives, citing risks to retail traders. The FCA’s strict overwatch is but one example of a growing worldwide willingness of authorities to flex their muscle over their respective local cryptocurrency markets. From anti-money laundering (AML) laws to tax guidelines, several government agencies are placing greater compliance requirements on businesses dealing with digital assets.

Japan’s FSA Working With SROs

Japan was the first country to develop a regulatory framework for crypto exchanges. The country’s Financial Services Agency (FSA) began policing cryptocurrency exchanges back in 2017. After China banned ICOs and crypto trading in September 2017, Japan became a popular destination for crypto exchange platforms. However, subsequent high profile hacks against Tokyo-based exchanges like Coincheck resulted in the FSA tightening its overwatch. In March, Japan passed its amended Financial Instruments and Exchange Act (FIEA) and Payment Services Act (PSA). Both provisions provide a clear-cut scope for policing the country’s crypto market. Self-regulatory organizations (SRO) like the Japan Crypto Asset Trading Business Association (JCBA) and the Japan STO Association (JSTOA) are now officially recognized to supervise certain activities as the crypto space matures. The JCBA, previously known as the Japan Virtual Currency Exchange Business Association (JVCEA), oversees crypto exchanges while the JSTOA is responsible for supervising token sales. Earlier in June, the FSA warned financial investment advisors in the country to be duly registered before offering their services. Japan’s financial regulator has also taken steps to limit the leverage cap on crypto margin trading.

South Korea and Real-Name Crypto Accounts

South Korea is another Asian country with a significantly large crypto market scene. However, tough regulations between 2018 and 2019 saw a massive decline in the country’s trading volume with major exchanges declaring losses. Multiple blockchain firms have since listed their tokens on overseas exchanges. Most of South Korea’s crypto regulations focus on KYC and AML laws. Banks are mandated not to offer services to exchanges who do not comply with these standards. The cost of compliance is often more than the financial ability of smaller platforms with a few closing their doors in recent years. Earlier in 2020, the country’s parliament passed new laws mandating real-name accounts on crypto exchanges to combat money laundering. The new regulation which comes into effect in 2021 effectively legalizes cryptocurrency trading in South Korea. Apart from this crypto trading surveillance, South Korea is also developing a framework for cryptocurrency taxation. In mid-June, the government announced plans to introduce a capital gains tax for traders, similar to the treatment given to real estate transactions.

U.S., SEC ICO Enforcement, and IRS Tax Laws

Since 2017, the U.S. Securities and Exchange Commission has had its eye on ICOs. Indeed in 2020, the SEC is still investigating and suing projects that profited from the mania. For the Commission, most ICOs constitute an illegal sale of securities. Several projects have been forced to pay disgorgement penalties. Celebrity endorsers were no exception with several notable scams. The aborted Telegram token distribution is perhaps one of the SEC’s biggest ICO scalps. The SEC’s power to recoup ill-gotten gains may take a hit, however, following a ruling by the Supreme Court on Monday. According to a judgement, the SEC can only win disgorgement equal to the net profit of the indicted party and all funds recovered must be used in reimbursing affected investors. On the tax front, the Internal Revenue Service (IRS) has also ratcheted up its enforcement several notches. At the start of the year, the IRS updated its 1040, focusing its efforts on cryptocurrencies and the gig economy for the 2020 tax season. Confusion over the exact definition of virtual currencies caused the IRS to clarify its stance on in-game tokens like Fortnite’s V-bucks that currently do not fall under taxation.

India and Bitcoin Ban Tussle

In March, India’s Supreme Court overturned the central bank’s crypto ban. Back in 2018, the Reserve Bank of India (RBI) prohibited commercial banks from servicing crypto exchanges. In the aftermath of the RBI ban, many crypto exchanges left the country. Cryptocurrency trading was restricted to peer-to-peer (P2P) channels like Localbitcoins and Paxful. Despite the overturned ban, exchanges are still facing difficulties in securing banking services. As reported by BeInCrypto, India’s government may be moving forward with a blanket crypto ban. The country’s Finance Ministry has called for another round of discussions on the matter. A previous inter-ministerial committee recommended a total crypto ban in July 2019, threatening jail-time for people found dealing in cryptocurrencies.

Elsewhere Around the World

As Southeast Asia increases its cryptocurrency activity, regional countries are forging ahead with clear-cut guidelines for participants in their respective digital economies. These laws usually centre around AML policies designed to prevent fraud and protect investors while not stifling digital innovation. In Africa, there hasn’t been much in the way of crypto regulations from governments. That hasn’t stopped a massive surge in interest for Bitcoin (BTC), though. In South Africa, major banks shut down accounts belonging to exchanges in late 2019. The country’s central bank is reportedly working on new laws.