A review of the regulatory policies of the world's major encryption markets and a list of important licenses

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Lead:

Since 2022, several sudden thunderstorms in the encryption industry have brought very serious turmoil to the entire market, and the previously fast-growing encryption ecosystem has also turned into a recession. Market participants have seen the market failure caused by the lack of supervision of stablecoins, hedge funds and trading platforms, and also seen the systemic risks that may be caused by the deepening connection between the encryption industry and the core financial system and the impact on the overall stability of the financial system. shock.

In this context, the importance of global encryption regulatory policies is self-evident. By strengthening financial regulation in this area and developing global standards that can be consistently enforced by national regulators, many of these issues can hopefully be addressed in advance.

Currently, the global distribution and development of the crypto market is not synchronized. Some emerging market economies are trying to use it to solve their own economic problems, while some countries regard it as a scourge. It is undeniable that it has its own innovation and the necessity of urgent supervision. Therefore, policy makers in relevant fields in mainstream countries around the world are taking swift actions to manage risks without stifling innovation.

As a platform that focuses on the development of the entire industry and cutting-edge trends, Chain Catcher has collected the latest encryption regulatory policies in important global markets, as well as the laws and relevant license guidance that must be complied with in the local encryption business.

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U.K:

The UK Financial Conduct Authority FCA was established in 2013 and is headquartered in London, UK. Its predecessor is the British Financial Services Authority FSA. The FCA inherited from the FSA the regulatory responsibilities and prudential responsibilities related to the conduct of the British financial market. It is responsible for supervising the business conduct of various financial institutions, promoting financial market competition, and protecting consumers, and is directly responsible to the British Parliament and the Ministry of Finance.

The FCA's regulatory scope applies to encrypted asset exchange providers and custodial wallet providers, existing financial services companies that conduct encrypted asset activities, electronic money institutions or payment service companies.

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Dubai:

In February 2022, Dubai promulgated important laws on virtual assets, establishing the Virtual Assets Regulatory Authority (VARA) as an independent regulator located in the Dubai World Trade Center, responsible for supervising exchanges, wallets, issuers and all cryptocurrency-related activity. VARA aims to regulate the encryption industry by creating an easily replicable framework. It hopes to use the expertise of global experts and organizations and cooperate with relevant local financial regulators to help reduce risks and promote cross-border operations and innovation.

Virtual asset service providers meeting VARA licensing requirements are required to adhere to four mandatory rulebooks (Corporate, Compliance and Risk Management, Technology and Information, and Market Conduct). In addition, VARA has developed a rulebook for seven specific activities to address the risks associated with virtual assets (advisory, broker-dealer, custody, trading, lending, payment and remittance, and management and investment).

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United States (taking New York State as an example):

The U.S. government adopts a two-tier regulatory system of state and federal.

At the federal level, there are two categories: securities and non-securities. Among them, the securities regulatory body is the Securities and Exchange Commission (SEC), and the non-securities regulatory bodies are the Financial Crimes Enforcement Network (FinCEN), the Commodity Futures Trading Commission (CFTC), and the Internal Revenue Service (IRS).

The Securities and Exchange Commission is the leading regulatory agency in the field of blockchain and digital assets in the United States. All digital assets that are found to meet the definition of "securities" will be included in the scope of comprehensive supervision by the SEC from participants to market behavior.

The Financial Crimes Law Enforcement Network focuses on the supervision of digital asset circulation. Its main task is to combat money laundering, terrorist financing and other financial crimes in financial and digital currency transactions. The supervision of digital assets is more biased towards currency attributes. Digital asset exchanges and their managers are essentially money transfer service providers, and money transfer service providers must comply with the Bank Secrecy Act and its implementation regulations according to the law, then digital asset transfer service providers must be registered with FinCEN as MSB license, establish corresponding anti-money laundering mechanism, and comply with relevant regulations on anti-money laundering and anti-terrorism financing.

The Commodity Futures Trading Commission focuses on the supervision of the trading and circulation of corresponding digital asset derivatives. Digital assets are regulated by the CFTC as commodities while protecting market participants from fraud.

The Internal Revenue Service is responsible for collecting taxes and enforcing tax laws. As a type of digital asset class, digital currency is subject to capital gains tax on the sale of such properties.

Specific to the state level, each state independently conducts research on digital asset technology and regulatory issues. The regulatory bodies include the Office of the Comptroller of the Currency, the State Financial Administration, and the State Taxation Bureau.

At present, the state of New York has clearer encryption regulatory policies. It released the BitLicense regulatory framework in 2015 through the State Financial Administration as the lead agency.

BitLicense is a business license for virtual currency activities issued by the New York State Department of Financial Services (NYSDFS) under rules designed for companies or individuals engaging in virtual currency business activities. The first BitLicense was issued in 2015. On June 25, 2020, New York regulators implemented a more "lenient" framework, allowing potential licensees to work with existing BitLicense holders to receive specialized guidance related to structure, capital, systems and personnel requirements.

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Singapore:

Singapore's encryption market is under the centralized supervision of the Monetary Authority (MAS), which clearly distinguishes digital securities, digital currencies and other types, and incorporates them into existing regulatory frameworks such as securities and currencies for classified supervision.

MAS currently lists 3 types of licenses, Money-Changing License currency exchange license, Standard Payment Institution (SPI) standard payment license, Major Payment Institution (MPI) large payment license. Currently SPI and MPI can be applied to digital currency exchanges.

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China Hong Kong:

The Chinese government adopts a prudent regulatory attitude in Hong Kong, and its regulatory bodies are the Hong Kong Securities and Futures Commission (SFC), the Hong Kong Treasury Bureau, and the Hong Kong Monetary Authority.

There are two main regulatory ideas:

First, clearly distinguish the types of digital assets such as digital securities and digital currencies, and incorporate them into existing regulatory frameworks such as securities and currencies for classified supervision. The Hong Kong Securities Regulatory Commission assumes the main regulatory responsibility for the issuance and trading of digital securities and related derivatives. In the future, the Hong Kong Treasury Bureau will be responsible for supervising digital currencies and other digital assets.

Second, continue to use the existing license type and adopt a license management mechanism for digital asset exchanges. The Hong Kong Securities Regulatory Commission allows digital asset exchanges to apply for Type 1 (securities trading) and Type 7 (providing automated trading services) among the existing 10 types of licenses, and is considering liberalizing Type 9 (providing asset management) licenses.

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Japan:

The regulators in Japan's encryption field are the Financial Services Agency and the Japan Virtual Currency Exchange Industry Association (self-regulatory organization). It adopts the overall idea of ​​layered supervision, giving priority to the supervision of anti-money laundering/anti-terrorist financing, and then supervising the trading platform to protect the interests of users.

Based on the existing relatively complete legal framework, Japan has made targeted and complete provisions on encrypted assets, enabling the legality of encrypted asset supervision to be implemented. Statutory information disclosure + industry self-discipline" complete regulatory model.

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Spain:

The Bank of Spain requires relevant domestic crypto companies to register as virtual asset service providers (VASP). The registration will allow the company to offer services such as crypto asset exchange, custody and more in Spain, as required by its Central Bank’s Anti-Money Laundering and Counter-Terrorist Financing (AML/CTF) rules.

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Bermuda:

In September 2018, the Bermuda Monetary Authority (BMA) issued the "Digital Asset Business Act" (DABA), and then successively issued the "2018 Digital Asset Business (Network Security) Rules", "2018 Digital Asset Business (Client Disclosure) Rules" ” and the Digital Asset Business (Prudential Criteria) (Annual Returns) Rules 2018. And, the same AML/CFT legislation that applies to other financial sectors also applies to digital asset businesses.

DABA requires anyone carrying on a digital asset business within Bermuda (unless exempt) to apply for a license from the BMA. There are two types of licenses. Type F licenses are full licenses, not limited to a specific time period, but may be restricted if the BMA deems necessary; Type M licenses are intended to be a regulatory sandbox for financial firms, with a particular focus on those looking to innovate and participate in new products and service testing companies. Class M licenses are only valid for a specified period of time, after which the licensee may cease operations.

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Gibraltar:

Gibraltar introduced a licensing system for blockchain companies as early as 2018. Both ICOs and cryptocurrency exchanges can operate legally and compliantly as long as they meet the requirements set by the Gibraltar Financial Services Commission (GFSC). Any company using blockchain technology must obtain a Distributed Ledger Technology Provider License (DLT), which grants permission to provide various services.

Gibraltar is tax-exempt for cryptocurrency projects, so cryptocurrency-related projects are only subject to 10% corporate income tax. Additionally, capital gains and dividends are not taxed. In addition, certain foreign-sourced income derived from corporate activities is also tax deductible if that income is not related to what is covered by the DLT license.

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Estonia:

In January 2021, the Estonian Ministry of Finance released draft legislation to tighten regulation of the country's crypto industry. The Estonian financial regulator Finantsinspektsioon is specifically responsible for the regulation of cryptocurrency businesses.

Under the new regulations, crypto companies operating in Estonia will have to report to Finantsinspektsioon. The previous 381 license holders must reapply to the Financial Supervisory Authority for a license to operate. According to news in December 2020, the Estonian Financial Intelligence Unit (FIU) has revoked the licenses of more than 1,000 encryption companies in 2020.

Finantsinspektsioon said that virtual currency transactions are subject to anti-money laundering regulations, and relevant companies need to pay attention to anti-money laundering and terrorist financing regulations. The provision of virtual currency exchange services for fiat currency and virtual currency wallet services must be properly authorized by the Financial Intelligence Unit.

In addition, the Estonian financial regulator requires companies to comply with the current Securities Market Act (SMA) and the Law of Obligations (LOA).