Cryptocurrency and blockchain technology is becoming more popular in the financial world. The regulatory framework of cryptocurrency is evolving rapidly some countries imposed bans on crypto while others are progressing.
Crypto Regulations and Compliance
Crypto regulations provide clarity, prevent fraud and protect market participants. Crypto assets provide various benefits as well as regulatory challenges and complexities. Most countries have found ways to tax gains from cryptocurrencies and some have more specific obligations than others.
Crypto compliance helps in safeguarding investors through the prevention of fraudulent activities. It is the process of following anti-money laundering cryptocurrency regulations.
Crypto Regulators in Action
- Financial Crimes Enforcement Network (FinCEN)
FinCEN mandates that cryptos are subject to regulations. It offers crypto service providers licenses, the network requires that they enforce Anti-Money Laundering compliance protocols and regularly keep records of events and transactions.
- Securities and Exchange Commission (SEC)
SEC considered cryptocurrencies as cash, securities, and cash equivalents and therefore requires the registration of crypto exchanges. It also mandates that individuals transacting in cryptos follow Sec regulations and laws.
- Commodity Futures Trading Commission (CFTC)
CFTC considers crypto tokens as commodities just like gold and has rules governing crypto transactions.
Cryptocurrency Regulations In Different Countries
Canada has approved Bitcoin exchange-traded funds. Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) have issued guidance requiring crypto-traded platforms and dealers in Canada to register with the provincial regulators. In 2021 Canada adopted a clear regime for trading platforms. The Canada Revenue Authority (CRA) treats cryptocurrency like a commodity for purposes of the Income Tax Act.
Cryptocurrencies are prohibited in Mexico. In Mexico, crypto-assets are not legal tender and are not considered currencies.
- United States
Although the Securities and Exchange Commission (SEC) is the powerful regulator, Treasury’s FinCEN, Federal Reserve Board and the Commodity Futures Trading Commission (CFTC) have issued their own guidance. SEC often views many cryptos as securities, CFTC calls bitcoin a commodity and treasury calls it a currency. To put right their differences the President’s Working Group and the Financial Stability Oversight Council play important roles in the development of a future regulatory framework.
The Internal Revenue Service (IRS) has issued tax guidance and requires investors to disclose yearly cryptocurrency activity on their tax returns.
The United States is the hub of cryptocurrencies as it consists largest number of crypto investors and crypto exchanges.
The Bolivian government banned the use of cryptocurrencies in 2014 in the belief that it would facilitate tax evasion and monetary instability. It is illegal to use digital currencies which are not issued by government.
- El Salvador
El Salvador is the first country in the world with its 2021 adoption of bitcoin as a legal tender and no tax is levied on cryptocurrencies.
Switzerland is known as a cryptocurrency-friendly nation. Switzerland’s financial market regulators, The Swiss Financial Market Supervisory Authority (FINMA) have defined licensing requirements for crypto businesses of all types including bitcoin kiosk operations. In July 2021 Switzerland implemented the Federal Act on the Adaptation of Federal Law to Developments in Distributed Ledger Technology (DLT Act).
In Switzerland, capital gains arising from a private wealth asset are exempt from income tax. This applies to capital gains from cryptos. Cryptocurrencies can be exchanged and traded so they are subject to wealth tax.
Ukraine is one of the top countries in usage of cryptocurrencies. In 2021 Ukrainian Parliament introduced basic regulations regarding all virtual assets. Under the law, a virtual asset means a set of electronic data that has a certain value and exists in the system of virtual assets circulation.
The bill regarding cryptocurrency was passed in February 2022. After the invasion of Russia, Ukraine received crypto donations to support the country’s defense effort.
In 2018 Reserve Bank of India banned crypto trading. In 2020 however, the Indian Supreme Court struck down the ban and clarified that no prohibition exists. A proposed crypto regulatory framework was on the website of Lok Sabha in 2021. The Cryptocurrency and Regulation of Official Digital Currency Bill 2021 was dropped and will likely resurface in the future.
Different countries have different regulatory bodies. Some are similar while others are different Since the existence of cryptocurrency governments and regulators are still working out to govern its uses. Many countries are progressing while others are working on it.