31 days of crypto and blockchain regulations, summarized

Government and regulatory support for cryptocurrency and blockchain is critical to growing the industry. We summarize the key updates every month, globally.

Europe

In July Germany’s Marcus Pleyer took over the Presidency of the Financial Action Task Force, extending the intergovernmental anti money laundering watchdog’s oversight of cryptocurrency for another year.

A 12-month review of the industry was published on 7 July and found positive steps were being taken with 35 of 54 jurisdictions putting FATF standards in place.  “There is evidence of progress…in particular in the development of solutions to enable the implementation of the Travel Rule.”

Reading between the lines, it appears the FATF is pleased about the industry’s willingness to fall in line and keen to establish ongoing positive links.

A second 12-month review of the industry starts now and will be completed in June 2021.

The FATF Travel Rule — which states that any person receiving over $1,000 must be identified and their personal data must ‘travel’ with future transactions — upended policy discussions when it was first proposed in October 2018.

For cryptoasset service providers essentially this means that they are required to hold accurate data on cryptocurrency senders and receivers, including their wallet addresses, full names and physical addresses.

Global financial watchdogs see this as a key step in preventing money laundering and terrorist financing.

Despite fears that the Travel Rule would cripple the sector — where transactions are designed to be pseudonymous — institutions have been working hard to provide solutions, including a P2P data-sharing system proposed by Coinbase, and the launch of a SWIFT-like standard for crypto messaging.

The next major FATF research report will cover “red-flag indicators” on cryptocurrency’s use in money laundering and is due out in October 2020.

Russia’s long running political battle over the fate of cryptocurrency use in the country came to a stunning conclusion on 22 July when the State Duma adopted the law ‘On Digital Financial Assets’. The document defines cryptocurrency as property, but prohibits its use in Russia to pay for goods and services. Advertising of cryptocurrency or cryptoasset is also banned. The new rules come into force on 1 January 2021. Enterprise blockchain solutions fare little better, as crypto providers still have to get their cryptographic elements certified by the FSB counter-intelligence agency.

Adoption continues to grow in the UK, as the Financial Conduct Authority market regulator, confirmed that over 2.6 million people — 4% of the population — have bought some form of cryptoasset. The UK however has fallen behind in the race to capture domestic investors: 83% buy their crypto through non-UK exchanges.

In other news, the Bank of Lithuania made what many see as a precursor to introducing their own Central Bank Digital Currency by issuing a collectible coin using the NEM blockchain. The bank claims it is the first digital coin issued by a central bank anywhere in the world. Buyers pay €99 for an LBCOIN and receive six randomly-selected digital tokens alongside it. These can be exchanged for physical coins, sent as a gift, swapped with other collectors online or transferred to a NEM public blockchain network.

“Digital money is inevitable in [this] digital economy,” said central bank board member Marius Jurgilas. “

Americas

Venezuelan continues its campaign against Bitcoin, after the military seized 315 Antminer S9s cryptomining kits. Officially the country has legalised cryptomining, requiring companies to register with Maduro’s government. But the industry repeatedly complains of extortion and having to pay cash bribes to keep their machines running. Perhaps no surprise when the country’s oil-backed Petro cryptocurrency appears to have spectacularly failed.

In the United States official oversight of cryptocurrency continues to grow. On 1 July US Senators put forward a bill which would require a congressional watchdog to study the role of cryptocurrency in trafficking, while a bombshell 22 July letter from the Office of the Controller of the Currency greenlit US national banks and savings associations to custody cryptocurrency, “including by holding the unique cryptographic keys associated with cryptocurrency”. This could be the biggest regulatory news out of the States in years.

Speaking to the Wall Street Journal, acting Comptroller Brian Brooks noted: “This opinion clarifies that banks can continue satisfying their customers’ needs for safeguarding their most valuable asset, which today for tens of millions of Americans includes cryptocurrency.

North of the border in Canada, the Ontario Securities Commission began proceedings against Toronto cryptoexchange Coinsquare, alleging that 90% of its trading volume was faked with wash trading, while 3iQ filed for an IPO for an Ether fund to match its Bitcoin Fund already trading on the Toronto Stock Exchange..

Middle East & North Africa

Iranian cryptominers — who contributed more than 4% of Bitcoin’s entire hashrate in April — now have just one month to register their operations with the government, according to a new directive issued by Vice President Eshaq Jahangiri.

In line with FATF recommendations, the registration must include miners’ full identities and addresses, as well as noting the size of their operation and the type of equipment used.

In a bid to capture a portion of this burgeoning Middle Eastern industry, Kazakhstan officials said they would double the amount spent on cryptomining infrastructure by the end of 2020.

Later reports suggested that Kazakhstan is targeting a prestigious top three place globally as one of the largest cryptomining countries in the world.

South Asia

No updates.

East Asia & Pacific

Legal cryptocurrency adoption grows in both Thailand and the Philippines. In line with The Royal Decree on Digital Asset Businesses, the former confirmed it has approved 13 crypto companies to operate in the country, including cryptoexchanges and digital asset brokers. According to the Philippine central bank, the Bangko Sentral ng Pilipinas, the number of registered cryptoexchanges swelled to 16 this month with the addition of four newly-registered operators.

In South Korea on 22 July the Ministry of Economy and Finance published a revised tax code introducing a 20% income tax on cryptocurrency trading. The rule affects anyone earning more than $2,000 a year. The updated tax code must now be approved by parliament before coming into force on 1 October 2021.

Malaysia dropped another bombshell on Binance, accusing the world’s largest cryptoexchange of operating illegally in the country. While reports that owners will face a $2bn fine or 10 years in jail look overblown, it is another serious hit to Binance’s global reputation. It follows both Brazil and Malta in recent months clarifying that the exchange had no legal right to trade in their jurisdiction. To date only three cryptocurrency platforms — Luno, Sinegy and Tokenize — have gained approval from the Securities Commission of Malaysia.

The region continues to push ahead with CBDC development, as the Bank of Japan announced on 15 July it would include a digital yen in its upcoming Honebuto Plan for Economic and Fiscal Revitalization, while the Bank of Thailand said it was moving into its third phase of testing for its digital currency, which includes expanding CBDC usage to include large multinationals operating in the country.

Caribbean

No updates.

Africa

In South Africa this month — the largest cryptocurrency market in Africa to date — lawmakers intend to follow FATF Travel Rule guidelines in implementing stringent cryptocurrency regulation, market watchdogs confirmed. Amendments to the Financial Intelligence Centre Act legislation working its way through parliament include making crypto-asset service providers “accountable institutions”, demanding that they register with the government as well as doing relatively extensive due diligence on their customers.

Cryptoasset custody providers and exchanges will both be subject to the new laws under these amendments, and must report cash transactions of $1,300 or above.