While some nations such as El Salvador and the Central African Republic are welcoming crypto with open arms, others are more apprehensive, mainly due to growing concerns about the sector’s volatility, as well as the risks it may pose for traditional financial systems. Moving forward, we’re going to explore the crypto regulatory efforts of several nations in the wake of the FTX collapse.
FTX, a bankrupt company that operated a cryptocurrency exchange and hedge fund, faced trouble after Coindesk revealed that its partner firm held a significant portion of assets in FTX's native token. Binance's decision to sell its FTT holdings caused customer withdrawals, and Binance considered acquiring FTX but backed down due to reports of mishandled customer funds and US investigations.
FTX filed for Chapter 11, and its collapse highlighted the need for stricter regulations. FTX's founder, Sam Bankman-Fried, was later arrested for financial offences. Douwe Lycklama, founding partner at INNOPAY, detailed for The Paypers the context that led to the FTX collapse, presenting the important lessons that the crypto and larger economic market should learn and act on in the coming future.
Nevertheless, collapse of FTX was a wake-up call for governments and regulatory bodies, as it made them realise that the market for digital assets requires stricter regulation.
Even before the FTX debacle, measures were being put in place to regulate crypto at an EU level. In June 2022, the European Council and European Parliament reached a provisional agreement on MiCA - the Markets in Crypto Assets Regulation. First issued in September 2020, the MiCA framework was designed to improve consumer protection, establish clear crypto industry conduct, and implement new licensing requirements. Initially, the bill was supposed to be submitted to a final vote in November 2022, but that vote was delayed until February 2023 due to a series of technical issues related to translation.
In the EU, legal documents such as MiCA need to be made available in all the bloc’s official languages. Given that MiCA’s document form comprises nearly 400 pages, translating it into the 24 official languages of the bloc proved challenging. Therefore, the vote has been postponed once more, this time until April 2023.
A framework for digital asset providers was established in France in April 2019 in the form of the Action Plan for Business Growth and Transformation. France’s Financial Market Authority (AMF) established new rules and regulations for crypto asset service providers and ICOs, related to the PACTE, and in December 2020, Ordinance No. 2020-154452 was introduced to complement the country’s crypto asset regulations. Crypto asset regulations in France were completed and enforced in June 2021.
In January 2023, citing the current state of the crypto market as well as the sector’s volatility, the governor of the Bank of France has proposed stricter regulatory requirements for cryptocurrency businesses. In the same month, members of the French National Assembly moved up the date that requires crypto companies to obtain authorisation from regulators in order to operate. Originally, the Senate proposed a deadline of October 2023 for these new requirements, as it was hoping to stop crypto companies from abusing the Markets in Crypto Assets (MiCA) regulation.
Lawmakers at the National Assembly have decided to push this date back to 1 January 2024 in order to give new entrants some time to obtain their authorisation. Moreover, by moving up the date, the Financial Markets Authority will also have more time to process applications. The proposal received mixed reactions, mainly due to a concern that the amendment could hurt France’s chances of becoming a crypto hub.
Governor François Villeroy de Galhau proposed that the current registration for cryptocurrency businesses should be replaced by a licence. The executive also warned that France should act before upcoming EU regulations come into effect and make French government licencing mandatory for digital asset service providers (DASPs). Current French laws allow companies to simply register instead of seeking authorisation, which requires a more complete set of checks on financial resources and business conduct. At the time of writing, companies such as Binance and Societe Generale have registered but are not yet authorised.
In April 2022, the UK expressed its intention to become a global crypto hub and in February 2023, as part of these efforts, the UK government has revealed its plans to fully regulate crypto asset activities.
According to the Economic Secretary to the Treasury, the UK government is setting out an ambitious plan to fully regulate crypto asset activities, including strengthening rules for crypto trading platforms, as well as supporting a new regime for crypto lending. These new proposals aim to make sure that crypto exchanges have fair and well-defined standards. Furthermore, the proposals will focus on strengthening rules for financial intermediaries and custodians.
In essence, this new approach to crypto regulation in the UK will be designed to improve consumer protection, while making sure that crypto asset promotions will be held to equivalent standards as promotions of financial services products with comparable risk profiles.
In January 2023, the UK’s National Crime Agency has decided to assemble a specialised team tasked with investigating cryptocurrency-related crime. The National Cyber Crime Unit (NCCU) Crypto Cell will initially include five officers and will support existing and new investigations that require specialist cryptocurrency experience.
The United Kingdom is particularly interested in preventing cryptocurrencies from being used to fund unlawful activities. To this end, the UK Parliament introduced the Economic Crime and Corporate Transparency Bill, which makes it easier for police forces to investigate and act against organised criminals that use crypto for illicit activities. The bill follows the Economic Crime (Transparency and Enforcement) Act that was passed in 2022, which allowed the government to move faster when imposing sanctions and created a register of overseas entities to target foreign criminals using UK property to launder money.
The US passed more than 20 pieces of legislation with the goal of defining how cryptocurrencies should be handled when it comes to taxation, investments, and payments. While cryptocurrencies are not seen as legal tender in the US by the Financial Crimes Enforcement Network (FinCEN) and the Internal Revenue Service (IRS), the IRS has defined crypto as a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value.
In January 2023, a month and a half following the collapse of FTX, a trio of federal agencies have issued a warning about the risks of crypto (fraud, volatility, and contagion). The warning was addressed to banks and was issued by the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) based on various issues identified in the crypto sector in 2022.
In the same month, the New York State Assembly introduced a new bill that would support cryptocurrency as a form of payment for fines and taxes. The bill would allow citizens to pay fines, civil penalties, taxes, fees, and other payments charged by the state using cryptocurrencies. It’s worth noting that the bill does not force agencies to accept payments via crypto, but it does give them the freedom to legally agree to accept such payments should they want to.
The Commodity Futures Trading Commission (CFTC) and the SEC have been debating whether digital assets such as cryptocurrencies are commodities or securities. If they end up being classified as commodities, these digital assets will likely fall under the jurisdiction of the CFTC.
In Taiwan, the fall of FTX added a sense of urgency when it comes to cryptocurrency regulation. In March 2023, the Financial Supervisory Commission of Taiwan has revealed that it will become the main cryptocurrency regulator in the country. Taiwan will have special legislation to regulate cryptocurrency, and a framework for this new law is expected to come out by June 2023. As for an initial draft, it should be revealed later in 2023.
There are two financial regulators in Taiwan, namely the Central Bank of the Republic of China and the Financial Supervisory Commission. The former specialises in monetary policy and foreign exchange regulations while the latter oversees banking regulation, securities and futures, as well as anti-money laundering initiatives.
The Financial Supervisory Commission will not be regulating NFTs, as they are still emerging as an asset class and the FSC will likely require more time to develop a proper set of NFT classification guidelines.
In November 2022, just a few weeks after FTX filed for bankruptcy, chief economist at the Ministry of Finance, Shira Greenberg, proposed a more inclusive regulatory framework that would help regulate trading platforms and crypto issuers. She proposed expanding the powers of the Israel Securities Authority to ascertain whether a digital asset falls within the scope of Israeli securities laws and to monitor the activity of payment service providers in the crypto space. She suggested that supervisors of financial service providers have broader powers to oversee licensing rules and create a better taxation framework for the buying and selling of digital assets.
In January 2023, the Israel Securities Authority (ISA) has released a draft proposal to define the legal status of cryptocurrencies in Israel. The proposal includes a series of amendments to Israel’s securities laws that would expand crypto supervision and would make sure that crypto assets are covered by the regulatory framework and placed under its oversight. If everything goes according to plan, digital assets would be seen as virtual representations of value that fall under the category of financial instruments.
The proposals remained open for public feedback and comments until the middle of February 2023. If approved, the new rules will be implemented towards the end of 2023 to ensure a smooth transition.
In 2013, the Reserve Bank of India (RBI), which is the country’s central bank, issued a statement that warned users, holders, and traders of virtual currencies, including cryptocurrencies, about the potential risks associated with their use. The bank echoed that warning ten years later in January 2023, as it released a financial stability report that put digital currencies into the spotlight.
When it comes to virtual currencies, the RBI expressed scepticism over the future of the asset class and the risk that they pose to the broader financial industry. The report cited the catastrophes that plagued digital assets from the collapse of Terra, FTX, and the streak of top projects halting withdrawals for users.
India’s central bank revealed that the only way to mitigate the risks posed by the volatile asset class is by using a common approach to regulation. The report suggested the use of the ‘same-risk-same-regulatory-outcome’ principle. This route would see the virtual currency service providers being regulated in the same manner as banks.
At the beginning of 2023, the governor of the Reserve Bank of India renewed his stance on banning cryptocurrencies such as Bitcoin and Ether altogether. Despite its crypto-regulation turmoil and the fact that the country’s Finance Minister did not provide a clear path on policy planning and a government position for crypto, India ranked 4th in 2022 in crypto adoption as 29% of its population was holding some form of cryptocurrency.
In March 2023, the Finance Ministry of India has revealed that money laundering legislation has been applied to crypto trading, safekeeping, and other related financial services. This means that digital asset platforms in India are required to follow anti-money laundering standards (AML) similar to banks or stockbrokers.
The regulatory framework of Hong Kong has long considered cryptocurrency as virtual commodities and not legal tender, which has allowed the crypto industry to prosper without the close supervision of the Hong Kong Monetary Authority (HKMA). Given what happened to FTX and other high-profile companies in the sector in 2022, the Hong Kong Monetary Authority has revealed its intentions to introduce new regulations when it comes to crypto assets and stablecoins.
In 2022, the HKMA put forward a discussion paper on crypto-assets and stablecoins and asked for feedback. The responses seemed favourable to regulating stablecoins with a risk-based approach adapted to evolving market conditions.
The conclusion summary of the discussed paper from January 2023 revealed that the Hong Kong Monetary Authority wants to move forward with new regulations for the issuance, creation or destruction of an in-scope stablecoin. The regulator also wants to keep an eye on the provision of services that allow the storage of the users’ cryptographic keys that enable access to the users’ holdings of an in-scope stablecoin and the management of such stablecoins.
Moving forward, companies that conduct a regulated activity in Hong Kong, actively market a regulated activity to the public of Hong Kong or conduct a regulated activity that concerns a stablecoin that purports to reference the value of the Hong Kong dollar will require a licence from the HKMA.
The collapse of FTX as well as the price drop of crypto assets such as Bitcoin and Ethereum has prompted the International Monetary Fund to have a closer look at what’s going on in Africa’s crypto market. In November 2022, the IMF has proposed an increase in regulation as well as improved consumer protection in Africa. The IMF was particularly concerned that cryptocurrencies could be used to transfer funds illegally out of the region, while widespread crypto use could affect monetary policy effectiveness.
Data from the October 2022 Regional Economic Outlook for sub-Saharan Africa report caused further concern about countries such as the Central African Republic where crypto is accepted as legal tender. Data from IMF showed that 25% of countries in sub-Saharan Africa have implemented formal cryptocurrency regulation efforts while two-thirds have explored and implemented several restrictions. It’s also worth noting that crypto assets are banned in African countries such as Tanzania, the Republic of Congo, Ethiopia, Lesotho, Sierra Leone, and Cameroon.
South Africa's Advertising Regulatory Board added a cryptocurrency-related clause to the country's advertising code to protect consumers from unethical practices. The new clause requires advertisers to inform consumers of potential investment losses and not contradict such warnings. Advertisements for cryptocurrency products must be easy to understand and include information on features, benefits, returns, and risks.
In conclusion, regulatory efforts related to cryptocurrency are underway globally, providing reassurance to businesses operating in this space. With the improvement of risk, volatility, and security, regulations are becoming more refined, covering investment rules and consumer protection. It is important for both the public and authorities to become more educated about the opportunities and risks associated with cryptocurrencies and decentralised infrastructures. While risks also exist with centralized entities, they are better controlled. As such, The Paypers will continue to monitor this space closely and provide regulatory updates.
A dedicated and inquisitive copywriter and blogger, Dragoș has extensive experience in editing and developing content related to IT and tech. After joining The Paypers, his focus turned to the latest fintech, payments, and crypto announcements. For Dragoș, connecting the dots and observing trends and developments in the industry is becoming second nature.
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