Cryptocurrency and its regulation feature all around the world.

Introducing cryptocurrencies into the international financial system is responsible for the development of the FinTech sector. It is primarily marked by changes in the nature and structuring of traditional economic sectors.

Cryptocurrency and its robust regulatory features control the world now. It is distinguished by distinct features like decentralization of financial operations and confidentiality of financial transactions. 

This proposal explains why different governments (both domestically and abroad) are looking into cryptocurrencies with a focus on identifying the best kind of structure to adopt. The reality that cryptocurrencies provide an alternative to traditional banking is one reason for this push. They also differentiate how buyers and sellers make payments.

Because FinTech regulation offers a fresh approach to financial modelling, it is a field of study still largely unexplored. Because cryptocurrencies represent a decentralized model that operates outside the traditional framework, the legality of the process is also proved.

Therefore, the failure of different countries to consider the threats that cryptocurrencies introduce to the global financial system gave rise to the need to investigate the issues relating to cryptocurrencies. Despite being a thoroughly researched study field and a threat to the traditional financial system, money laundering is not examined in FinTech.

How are Cryptocurrencies regulated in countries around the world?

Countries and regulators have taken positions ranging from outright banning these financial benefits to allowing them to operate under certain restrictions to the other extreme of allowing virtual currency trading without any rules.

On how to classify as a currency or asset — and how to control it from a practical standpoint — governments and regulators are still at odds. Unusually divergent policy and regulatory responses have developed, and there is no sign that national responses are coordinated.

Global Cryptocurrency Regulations: 

US Cryptocurrencies- 

Are not regarded as legal tender exchanges for cryptocurrencies: Legal; state-by-state regulation varies-

The US is making progress in creating federal cryptocurrency legislation, although finding a consistent legal approach at the state level is challenging. The Financial Crimes Enforcement Network (FinCEN) does not consider cryptocurrencies legal tender. 

Exchanges

Exchanges for cryptocurrencies are permitted in the US and are governed by the Bank Secrecy Act (BSA). Companies that offer cryptocurrency exchange services must register with FinCEN, establish an AML/CFT program, keep the necessary records, and file reports with the appropriate authorities.

While this is happening, the US Securities and Exchange Commission (SEC) has stated that it views cryptocurrencies as securities and that digital wallets and exchanges must adhere to all applicable securities laws.

In contradiction, the Commodities Futures Trading Commission (CFTC) has taken a more lenient stance of “do no harm,” referring to Bitcoin as a commodity and allowing cryptocurrency derivatives to trade publicly.

FinCEN made it clear that it anticipates cryptocurrency exchanges to adhere to the “Travel Rule” and collect and share information about cryptocurrency transactions originators and beneficiaries in response to guidelines published by FATF in June 2019.

It applies all the same regulations, including those outlined in the Bank Secrecy Act, which has its version of the Travel Rule. It puts virtual currency exchanges in the same category, which is regulated as conventional money transmitters.

A Notice of Proposed Rulemaking (NPRM) on modifications to the Travel Rule was published by FINCEN in October 2020, introducing new compliance obligations for cryptocurrency exchanges.

Upcoming regulations

According to the US Treasury, cryptocurrency regulations are urgently needed to combat domestic and international criminal activity. To require cryptocurrency exchanges and wallets to collect data, FINCEN proposed new law in December 2020.

The rule would require wallet owners to provide identification when sending more than $3,000 in a single transaction and mandate that exchanges submit suspicious activity reports (SAR) for transactions over $10,000 by the fall of 2022.

To ensure efficient consumer protection and more streamlined regulatory oversight, the Justice Department continues coordinating with the SEC and CFTC on upcoming cryptocurrency regulations. The Biden administration focused on stablecoins in 2021 to address the risk posed by the token’s value appreciation.

A series of reports from the President’s Working Group on Financial Markets issued recommendations later that year, one of which called for new legislation. In 2021, Congress also discussed how to regulate cryptocurrency service providers after the Biden administration’s infrastructure bill included new regulations. The new regulations classify cryptocurrency exchanges as brokers and require them to abide by the necessary AML/CFT reporting and record-keeping requirements.

Canada-

Cryptocurrencies: Not accepted as currency. Exchanges for cryptocurrencies are permitted, but after June 1, 2020, they must register with FinTRAC.

Although not considered legal tender in Canada, cryptocurrencies can be used to pay for goods and services online or at merchants that accept them. Canada has taken a reasonably proactive approach to regulate cryptocurrencies, mainly enforcing provincial securities laws.

Act against Money Laundering and Terrorist Financing for Proceeds of Crime or PCMLTFA was first implemented in Canada in 2014. The first cryptocurrency- only investment fund was authorized by the British Columbia Security Commission in 2017.

 The Canadian Securities Administrators (CSA) published a notice in August 2017 regarding the applicability of current securities laws to cryptocurrencies. In January 2018, Canada’s Central Bank governor declared that cryptocurrencies “technically” fall under the purview of securities. Since 2013, the Canada Revenue Agency has taxed cryptocurrencies, and cryptocurrency transactions are subject to Canadian tax regulations.

Exchanges

Exchanges in Canada are essentially governed in the same way as money services businesses. They are subject to the same due diligence and reporting requirements following an amendment to the PCMLTFA in 2019. The Virtual Currency Travel Rule entered Canada in February 2020, requiring all financial institutions and money services businesses (MSB) to maintain records of all international cryptocurrency transactions (along with all electronic fund transfers).

The Canadian Securities Administrators (CSA) released guidelines in 2021 for cryptocurrency issuers holding or owning crypto assets. The procedures outlined legal requirements for disclosures, including disclosing pertinent risk factors that cryptocurrency issuers must make about safeguarding their purchases from theft and loss. A similar need for cryptocurrency exchanges to register with the Financial Transactions and Reports Analysis Centre of Canada was added by additional PCMLTFA amendments in 2021. (FinTRAC).

Upcoming regulations

There are no indications that any significant new legislation is imminent, although regulations are constantly changing. We believe th

at before considering new legislation, the Canadian government and cryptocurrency exchanges will need some time to assess how the most recent changes have altered the crypto landscape.

India Cryptocurrencies:

Cryptocurrencies: Not accepted as currency.

Exchanges for cryptocurrencies: regulations under consideration. In India, cryptocurrencies are not recognized to be legal tender, and the future of exchanges is uncertain as new rules are being thought of. Although the tax treatment of cryptocurrencies is not yet precise, finance minister Bhagwat Karad suggested in February 2022 that a 30 per cent tax might be applied to cryptocurrency transactions.

Exchanges

The laws governing cryptocurrency exchanges in India are becoming more stringent. The Reserve Bank of India (RBI) outlawed “dealing with or settling virtual currencies” by banks and all other regulated financial institutions in the year 2018.

The broad regulation made it illegal to trade cryptocurrencies on domestic exchanges and required active exchanges to close. But in a historic ruling in 2020, the nation’s Supreme Court declared that ban unconstitutional and gave in, allowing exchanges to reopen.

Upcoming regulations

A leaked, alleged draught bill from 2019 implied that a total prohibition of cryptocurrencies was being considered, except for a proposed official digital currency. For those who “mine, generate, hold, sell, deal in, issue, transfer, dispose of, or use cryptocurrency in the territory of India,” the bill even suggested prison terms.

The effort to outlaw “all private cryptocurrencies, except any virtual currencies issued by the state,” despite the fact that that draught bill was never brought to the floor of parliament, was revived in 2021 by a study from the Chairmanship of Secretary (Economic Affairs). The Indian Minister of State for Finance alluded to a new cryptocurrency bill called the Cryptocurrency and Regulation of Official Digital Currency Bill.

In November 2021, representatives of cryptocurrency exchanges met with the Standing Committee on Finance. It concluded that cryptocurrencies should be regulated rather than outlawed, even though the Indian government has clarified that it opposes private cryptocurrencies. The legislative status of cryptocurrencies in India is still up in the air as of February 2022 because the Lok Sabha, the Indian parliament, has not yet approved the cryptocurrency bill.

China Cryptocurrencies: 

They are not considered legal tender.

Exchanges of cryptocurrencies: Prohibited. In 2017, the PBOC broke this prohibition by banning ICOs and domestic cryptocurrency exchanges. It should be no surprise that China does not view cryptocurrencies as legal tender and has strict cryptocurrency regulations. The Chinese government decided that cryptocurrencies have the property status to determine inheritances under an amendment to the Civil Code that will soon effect in 2020.

Exchanges

China first forbade all domestic cryptocurrency mining in June 2021, and then in September 2021, it outright outlawed cryptocurrencies. The new regulation effectively prohibited the use of both foreign and domestic cryptocurrency exchanges, which led to a significant token sell-off. Despite China’s blanket ban on domestic cryptocurrency exchanges, there are ways around it by using specific foreign websites and platforms that China’s internet firewall does not block.

Upcoming regulations

However, recent comments made by government representatives endorsing blockchain technology have raised the possibility that China wants to dominate the world of virtual currencies. There is no indication that China plans to lift or loosen its cryptocurrency ban anytime soon. China’s central bank has been working to introduce an official digital currency for years. In September 2021, it announced that pilot tests of its e-CNY digital currency had been completed in several cities, though a timetable is still unknown. It will be possible to pay for goods, bills, transportation fares, and tolls using the e-CNY token, which was created to take the place of cash and coins.

South Korea Cryptocurrencies:

Cryptocurrencies: Not accepted as currency

Exchanges for cryptocurrencies are permitted but require FSS registration. Cryptocurrencies are not regarded as legal tender in South Korea, and legitimate exchanges are subject to a rigid regulatory framework. The taxation of cryptocurrencies is ambiguous in South Korea because they are neither regarded as money nor financial assets, so trades are currently tax-free. However, the Ministry of Strategy and Finance has stated that it is considering taxing profits from cryptocurrency transactions and intends to make a tax announcement in 2022.

Exchanges

South Korea has strict laws governing cryptocurrency exchanges, which include government registration and other controls supervised by the South Korean Financial Supervisory Service (FSS).

South Korean government forbade the use of anonymous accounts in cryptocurrency trading. It prohibited local financial institutions from hosting Bitcoin futures trades in 2017, despite a rumored ban that never materialized.

Similarly, banks with accounts held by cryptocurrency exchanges are subject to stringent reporting requirements from the Financial Services Commission (FSC).

All South Korean exchanges must adhere to AML/CFT regulations after legislative changes take effect in 2020 and obtain an operating license from the Financial Intelligence Unit of the Financial Services Commission (FIU).

The South Korean government passed legislation in March 2021 requiring cryptocurrency users to use the same name on their virtual wallet accounts as they do on their bank accounts and requiring cryptocurrency exchanges to share customer identity information with banks. Additionally, in 2021, the FIU delisted all privacy coins from South Korean exchanges (effectively banning the trade of the tokens).

Upcoming regulations

The proposed cryptocurrency tax in South Korea will now go into effect in January 2023 instead of the original January 2022 deadline. South Korea has stated that it will continue to work to bring the industry into compliance with FATF’s anti-money laundering guidelines and the tax framework.

edited and proofread by nikita sharma