The growth of cryptocurrency from speculative investment to a new asset class has prompted governments around the world to explore ways to regulate it. Below, we summarize the current digital currency regulatory landscape in several countries.
The U.S. announced a new framework in 2022 that opened the door to further regulation. The new directive has handed power to existing market regulators such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
The SEC has already moved toward regulating the sector with its widely publicized lawsuit against Ripple, alleging that it raised more than $1.3 billion by selling its native token, XRP, in unregistered securities transactions. More recently, the SEC has been targeting exchanges such as Coinbase (COIN) and Binance (BNB) over their crypto products. SEC Chairman Gary Gensler has been vocal about the cryptocurrency and has referred to it as “a Wild West.”
“Nothing about the crypto markets is incompatible with the securities law,” Gensler said. “Investor protection is just as relevant, regardless of underlying technologies.”
We will likely see U.S. regulators coming down hard on cryptocurrency in the coming years to slow the continuous arrival of new coins. The outcome of the SEC’s suit against Ripple Labs, and its efforts to regulate crypto exchanges, is likely to determine whether cryptocurrencies can be classed as securities.
White House Is Looking to Clean Up Illegal Activity
One of the issues the Biden administration seeks to tackle is illegal cryptocurrency activity.
“The president will evaluate whether to call upon Congress to amend the Bank Secrecy Act, anti-tip-off statutes, and laws against unlicensed money transmitting to apply explicitly to digital asset service providers—including digital asset exchanges and non-fungible token (NFT) platforms,” according to the new framework.
The plan also states that the U.S. “Treasury will complete an illicit finance risk assessment on decentralized finance by the end of February 2023 and an assessment on non-fungible tokens by July 2023.”
Pathway Is Open to a Digital Dollar
The Biden administration’s new framework also sees “significant benefits” from creating a central bank digital currency (CBDC) or a digital form of the U.S. dollar.
Federal Reserve Chairman Jerome Powell has remarked that the key reason to release a CBDC would be to eliminate the need for alternative coin use in the country.
“You wouldn’t need stablecoins; you wouldn’t need cryptocurrencies if you had a digital U.S. currency,” Powell said in congressional testimony. “I think that’s one of the stronger arguments in its favor.”
China classifies cryptocurrencies as property for the purposes of determining inheritances.
The People’s Bank of China (PBOC) bans crypto exchanges from operating in the country, stating that they facilitate public financing without approval.
Furthermore, China placed a ban on Bitcoin mining in May 2021, forcing many engaging in the activity to close operations entirely or relocate to jurisdictions with a more favorable regulatory environment.
And in September 2021, cryptocurrencies were banned outright.
However, the country has been working on developing the digital yuan (e-CNY). In August 2022, it officially began rolling out the next round of its central bank digital currency (CBDC) pilot test program.
While crypto is not considered legal tender in Canada, the country has been more proactive than others about crypto regulation. Canada became the first country to approve a Bitcoin exchange-traded fund (ETF), with several trading on the Toronto Stock Exchange.
As for crypto trading platforms, the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) require that crypto trading platforms and dealers in the country register with provincial regulators.
Canada classifies all crypto investment firms as money service businesses (MSBs) and requires that they register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
From a taxation standpoint, Canada treats cryptocurrency similarly to other commodities.
While there are no cryptocurrency-specific laws in the U.K., the country considers cryptocurrency as property (not legal tender), and crypto exchanges must register with the U.K. Financial Conduct Authority (FCA). Crypto derivatives trading is banned in the U.K. as well. There are cryptocurrency-specific reporting requirements relating to know your client (KYC) standards, as well as anti-money laundering (AML) and combating the financing of terrorism (CFT). 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.
As of Aug. 30, 2022, crypto exchange and custodian wallet providers must comply with the reporting obligations implemented by the Office of Financial Sanctions Implementation (OFSI). Crypto firms must notify the OFSI as soon as possible if they know or have reasonable suspicion that a person is subject to sanctions or has committed a financial sanctions offense.
Japan takes a progressive approach to crypto regulations, recognizing cryptocurrencies as legal property under the Payment Services Act (PSA). Meanwhile, crypto exchanges in the country must register with the Financial Services Agency (FSA) and comply with AML/CFT obligations. Japan established the Japanese Virtual Currency Exchange Association (JVCEA) in 2020, and all crypto exchanges are members.
Japan treats trading gains generated from cryptocurrency as miscellaneous income and taxes investors accordingly.
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. The Act on Prevention of Transfer of Criminal Proceeds will be revised to collect customer information.
Australia classifies cryptocurrencies as legal property, making them subject to capital gains tax.
Exchanges are free to operate in the country, provided that they register with the Australian Transaction Reports and Analysis Centre (AUSTRAC) and meet specific AML/CTF obligations.
In 2019, the Australian Securities and Investments Commission (ASIC) introduced regulatory requirements for initial coin offerings (ICOs) and banned exchanges from offering privacy coins, which are cryptocurrencies that preserve anonymity by obscuring the flow of money across their networks.
In 2021, Australia announced plans to create a licensing framework around cryptocurrency and potentially launch a central bank digital currency (CBDC).
Learn more: Investopedia