Regulation of cryptocurrencies


Cryptocurrencies, and in some cases their incredible rollercoaster value fluctuations, have featured heavily in most major news outlets and have been debated a great deal in recent years. The regulation of cryptocurrencies did not keep quite the same pace for many years, but in recent years the regulating initiatives all over the world have become more frequent, and today even some of the most attractive financial jurisdictions in the world , as well as several smaller jurisdictions, have cryptocurrency regulations in place, making cryptocurrencies both safer and more respectable as a result.

While the approaches vary, some jurisdictions having chosen to simply update their laws or issuing notices or guidelines to their licensees as well as the public, and others passing completely new laws, there are more options for those wanting to regulate a cryptocurrency business than many would believe at first glance.

Porat Group has several lawyers with significant experience with cryptocurrency regulation, in various jurisdictions, and is therefore well equipped to guide those interested in cryptocurrency licensing, both when it comes to taking a hands on approach to every step in the regulatory process, as well as to choosing the best suited jurisdiction for each client.

While we always recommend a personal consultation in order to understand each client’s needs fully before we recommend a specific jurisdiction, below you will find a list of the jurisdictions that are currently the main options for those looking to regulate their business within the cryptocurrency industry.

Examples of various jurisdictions and their approach to cryptocurrencies

Estonia – one of the first jurisdictions in the world to regulate cryptocurrency exchanges specifically over 3 years ago. The country really stands out when it comes to innovative thinking as it is one of few EU member states facilitating cryptocurrency regulation.

Obtaining the license needed to operate as a licensed cryptocurrency exchange in the country previously required obtaining 2 different financial licenses: the Virtual Currency Exchange Service License, and the Virtual Currency Wallet Service License, but these two licenses were recently united into one. License holders are also required to open an Estonian branch of a foreign company, and the center of management of the business is required to be in Estonia. Regulated companies must also follow strict reporting and following strict KYC (Know Your Customer) rules etc.

It is important to note, however, that cryptocurrencies aren’t considered legal tender in Estonia (just like in the UK, for example) but exchanges dealing with cryptocurrencies that follow all the requirements set out by the regulator are deemed legitimate. Crypto to crypto exchanges were also recently approved for regulation.

When it comes to future regulation Estonia is also widely seen as the most promising candidate worldwide by many, as the country presumably had plans to introduce a national cryptocurrency (the “Estcoin”) in the past. While this plan is currently on hold many speculate that the Estonian government may think of other similarly innovative ideas in the future.

Australia – another interesting jurisdiction due to the new crypto exchange regulation under AUSTRAC. The country made the decision that the trade of cryptocurrencies (as well as other digital assets) could be regulated and included in Australia’s existing financial services regulatory regime, making it one of the most progressive countries in the world when it comes to cryptocurrency regulation.

Both cryptocurrencies (subjected to Capital Gains Tax) and cryptocurrency exchanges (called Digital Currency Businesses) are legal in the country, and those wishing to operate an Australian licensed cryptocurrency exchange need to operate from the country, identify and verify all users and clients, report all needed information to the authorities and keep records.

Japan – a country that started regulating cryptocurrencies as early as 2017 (in the amended Payment Services Act, which was amended again in 2019) which is impressively early by all comparisons.

The country is often said to have the most progressive cryptocurrency regulation as a whole in the entire world, as both cryptocurrencies and cryptocurrency exchanges are legal in the country, as long as the exchange is registered as a Crypto Asset Exchange Service Provider with the Japanese Financial Services Agency.

The regulatory process is strict and can take as much as 6 months, and regulated Crypto Asset Exchange Service Providers must keep records, have customer due diligence procedures and security measures in place, follow anti-money laundering and counter-terrorism funding rules and regulations and hold at least 10 million yen in capital.

Interestingly enough, it should also be mentioned that by Japanese law it is a punishable offense to spread false rumors about a cryptocurrency.

Japan is expected to continue holding its place as the most innovative place for cryptocurrency regulation, so we are sure many are following the related news from Japan all over the world.

Singapore – a country that did not start regulating cryptocurrencies as early as some of the other jurisdictions mentioned in this list, but better late than never!

Since 2020 the Monetary Authority of Singapore, or MAS, which is both Singapore’s national bank as well as the financial regulator in the country, has issued licenses for cryptocurrency businesses, and also has the authority to ban unsuitable individuals and companies from operating cryptocurrency businesses in the country.

Regulated cryptocurrency businesses in the country are called virtual asset service providers, or VASPs, and must have a “meaningful presence” in Singapore to be able to be licensed, as well as comply with the Securities and Futures Act (SFA), pay annual fees, fulfill reporting duties and record transactions, safeguard users’ information and comply with anti-money laundering regulations.

Malta – given that Malta is one of the leading jurisdictions for online gaming regulation worldwide it is interesting that they have also opted to regulate cryptocurrency businesses.

Will Malta become a cryptocurrency regulation powerhouse and trailblazer, as it has been in the gaming sector, for the cryptocurrency industry as well? Only time will tell but what is for sure is that the country already provides an interesting alternative for cryptocurrency companies looking to regulate their activities.

Cryptocurrency exchanges are legal in the country, and a regulatory framework for cryptocurrencies exists, consisting of 3 separate bills that were signed into law in 2018: The Malta Digital Innovation Authority Bill, The Technology Arrangements and Services Bill and the Virtual Financial Assets Bill. All these laws apply to crypto exchanges, brokers, wallet providers, advisers, and asset managers alike.

Various stakeholders and authorities have additionally issued guidelines relevant to the industry to further assist with the implementation of these laws. It is therefore often said that the Maltese legislation for cryptocurrencies is more complex than the legislation in most other jurisdictions that have regulated these activities. The legislation has therefore been criticized by some who hope for it to be simplified, and many point out that very few licenses for the industry have actually been issued. While the legislation looks interesting on the outside, it may therefore be a less attractive option for many in actuality.

Switzerland – given that Switzerland has been an important financial hub for decades, if not centuries, it is not surprising that it has also chosen to be on the forefront of new financial developments, including cryptocurrencies. Due to that, both cryptocurrencies as such (considered assets and therefore subject to the Swiss Wealth tax) and cryptocurrency exchanges are legal in Switzerland, as long as they obtain a license from the Swiss Financial Market Supervisory Authority (FINMA), and follow various anti money laundering measures, making the country the first traditional financial hub to regulate the industry.

Obtaining the license takes around 4 to 6 months, but FINMA also offers another interesting option: using a sandbox option, for which no licenses are required, up to an aggregated amount of 1 million CHF. This option enables cryptocurrency – and other fintech – companies to test products and business models without going through the regulatory process.

While the country already has one of the most advanced regulatory frameworks for cryptocurrencies in the world, it is believed Switzerland will develop this regulation even further, being a hub of not only cryptocurrency companies in general but other innovations, such as being able to pay city fees with cryptocurrencies (Zug, a prominent cryptocurrency hub, was the first city in the world to allow this) as well. We would therefore say that this is one of the top jurisdictions to follow if you are interested in cryptocurrency regulation in general.

Liechtenstein – may be a small country but it is a fairly big player in the cryptocurrency ecosystem, since adopting the Token and TT Service Provider Act in 2020 and is striving to become a blockchain center. While the regulatory framework is still as fresh as can be while we are writing this, the regulator, the Liechtenstein Financial Market Authority (FMA) has already issued some licenses, so this is definitely a very interesting, if still rather unknown option.

The United Kingdom – the status of cryptocurrencies and crypto assets recently underwent some major changes in the country. While promoting investments in crypto assets, such as crypto currency derivatives, to individuals is now banned within the UK, after a ban came into effect on January 6, 2021. This means companies cannot offer crypto derivatives to individual residents within the UK but for companies wishing to engage in cryptoexchange and custodian services within the UK, they will be able to do so, pending registration with the FCA, the financial regulator and the anti-money laundering and counter terrorist financing supervisor for crypto businesses in the country, and following their guidelines for the conduct and operation of the business.

Gibraltar – the Gibraltar Financial Services Commission has introduced a regulatory framework to oversee blockchain businesses operating in Gibraltar, thus becoming a pioneer not only in Europe, where it was the first country to regulate companies dealing with blockchain technology, also known as Distributed Ledger Technology, DLT, but one of the first in the entire world too. All companies in Gibraltar using this technology to either store or transmit value belonging to others must register with the Gibraltar Financial Services Commission.

Annual fees apply, anti-money laundering measures must be in place, the DLT Provider must prove a sound financial situation, maintain adequate financial and non-financial resources and be able to control and manage its business effectively, among other things, in order to qualify for the license.

What does the future look like for cryptocurrency regulation?

The regulatory landscape when it comes to cryptocurrency regulation is, and has been, constantly changing and further developments and regulatory possibilities are certainly expected. Porat Group will keep updating on the matter, both here on our website and on social media.

Why should you choose us if you are interested in regulating your cryptocurrency business?

Porat Group is one of the first law firms to offer legal services that enables cryptocurrency business owners to regulate their businesses and activities, due to our own genuine interest in the industry. Several of our lawyers are well equipped to handle regulation processes for the industry in multiple jurisdictions. We also make sure to be up to date with any news and development within the industry.

To prove our commitment to the crypto currency ecosystem, Porat Group is also one of very few law firms accepting payments in crypto currencies (Bitcoin and ETH) in return for the provision of our legal and consulting services.

Read more about the other legal services we can provide for blockchain and cryptocurrency companies here.

As mentioned above, we are also happy to give each client and potential client a personalized recommendation for a jurisdiction to go with for their cryptocurrency licensing needs, after having examined their business, its goals, needs and circumstances carefully. Contact us here should you be interested in such a consultation.