For the cryptocurrency industry, 2020 is a year full of opportunities and challenges.
This year, we experienced a lot of unwarranted disasters: the outbreak of the new crown epidemic, the US stocks fuse on two or four weeks, the 312 currency circle plummeted, the black swan of the exchange… the market is full of uncertainty.
This year, many things are turning in a good direction: PayPal supports Bitcoin trading, Ebang International’s NASDAQ listing, Filecoin goes online, cross-chain, ETH2.0 is constantly updated and developed, and market infrastructure is accelerating and improving; technology, The entry of financial giants shows that the trend of encrypted assets is irreversible; DeFi and NFT show the strong innovation and self-growth ability of the encrypted market…
However, in the process of rapid development of cryptocurrency, there are many hidden dangers under the hot situation. Regarding the disorderly development of the cryptocurrency market for many years, regulatory agencies play a key role in supervision and regulation. Every movement of the regulatory authorities is also closely related to the future development of the industry.
As the new year approaches, we will sort out the policies issued by mainstream countries in 2020.
United States
Compared with three years ago, the U.S. regulatory policy on cryptocurrency has become clearer.
The Internal Revenue Service, the Securities and Exchange Commission, and various state governments have successively introduced regulations on the management of cryptocurrencies.
In October, the official website of the U.S. Department of Justice released the cryptocurrency enforcement framework. It provides a comprehensive overview of new threats and law enforcement challenges related to cryptocurrency, and explains the importance of the US Department of Justice and other government agencies and regulatory and law enforcement partners around the world to establish partnerships and countermeasures. The first part of the framework divides the illegal use of cryptocurrency into three categories: 1. Financial transactions related to crime; 2. Money laundering and evading legal activities from taxation, declaration or other legal requirements; 3. Crimes, such as theft. The second part discusses the various legal and regulatory tools that the government can use to face cryptographic threats, and the third part discusses the challenges the government faces in the criminal activities that cryptocurrency may promote.
On October 30, two bills passed by the US Energy and Commerce Commission, the Digital Classification Act and the Blockchain Innovation Act, have been passed in the US House of Representatives and will soon be submitted to the Senate for consideration. The “Digital Taxonomy” provides definitions for “digital assets” and “digital units,” and will require the Ministry of Commerce and the Federal Trade Commission (FTC) to report recommendations on digital token fraud and other activities. The Blockchain Innovation Law will require the FTC to prepare a report on the role of blockchain in consumer protection.
In November, Erika Nijenhuis, a senior adviser to the Office of Tax Policy at the U.S. Department of the Treasury, stated that the Internal Revenue Service (IRS) is evaluating different approaches to cryptocurrency tax regulations. Nijenhuis also paid attention to the burden that each method puts on cryptocurrency contracting parties such as exchanges, and the series of benefits that each method brings, such as enhanced compliance. Earlier this year, the U.S. Internal Revenue Service pointed out in the 2020 Form 1040 “U.S. Individual Income Tax Return” draft guidance that any transaction involving virtual currency in 2020 will need to check the “Yes” option in encryption-related issues. Including virtual currency trading, exchange and out.
In the same month, the U.S. Securities and Exchange Commission (SEC) issued an amendment to improve the securities issuance exemption framework, including amendments to the rules for raising capital by early-stage startups, and increasing the upper limit of securities issuance that companies can conduct under the Reg A+ rules from 50 million US dollars to 75 million In US dollars, the upper limit of funds raised under the crowdfunding regulations will be increased from 1.07 million US dollars to 5 million US dollars, and the issuance upper limit under the Reg D rules will be increased from 5 million US dollars to 10 million US dollars. In addition, the SEC has also relaxed some restrictions on file filing and investment limits for qualified investors. The amendment will be published in the Federal Register for 60 days, after which it will take effect. Analysts believe that this may be beneficial to the issuance of securities tokens (STO).
On December 18, the U.S. Department of Justice’s Office of the Inspector General (OIG) recently stated that the Federal Bureau of Investigation (FBI) needs to implement a cryptocurrency strategy.
On December 19, the Financial Crimes Enforcement Network of the United States (FinCEN) issued a proposed rule that would require banks or money service businesses to record or report transactions related to unmanaged wallets. Once this regulation takes effect, encrypted digital currency self-custodial wallets will be subject to higher anti-money laundering standards, which means that anonymous transactions may become a thing of the past. According to this rule, the KYC requirements for withdrawals exceeding US$3,000 have been increased. For transactions exceeding $10,000, the company must report to FinCEN. This will require banks and MSBs to archive information related to transactions between customers and their counterparties, including names and physical addresses, to verify the identities of both parties.
On March 9, US Congressman Paul Gosar submitted the Crypto-Currency Act of 2020 (Crypto-Currency Act of 2020), which aims to clarify the corresponding regulatory agencies to supervise a series of encrypted assets.
Paul Gosar assistant Will Stechschulte said that the bill should not only provide clarity but also legitimacy for US crypto assets. Paul Gosar proposes to divide digital assets into three categories: encrypted commodities, encrypted currencies, and encrypted securities. These three types of institutions are regulated by the US Commodity Futures Trading Commission (CFTC), Financial Crime Enforcement Network (FinCEN) and the US Securities and Exchange Commission (SEC).
In addition, the U.S. Internal Revenue Service may conduct a more stringent review of crypto exchanges and is currently working with the Treasury Department to develop clear crypto taxation guidelines. With the rise of the DeFi wave, the US Commodity Futures Trading Commission (CFTC) Technical Advisory Committee is also paying attention to issues related to DeFi supervision.
This summer, the banking supervisory agency OCC and the Office of the Comptroller of Currency announced that the bank can also help customers custody electronic currency assets in the future.
United Kingdom
On December 24 this year, after more than 9 months, the EU and the UK finally announced a “Brexit” trade agreement. Some analysts believe that under the uncertainty caused by the coronavirus crisis and Brexit may further weaken the pound and increase the pressure on the Bank of England, virtual currencies may become a potential viable future asset choice or alternative for British residents. According to a report from the crypto exchange Kraken, the current number of bitcoins converted to British pounds is 38 times that of the same period last year.
What policies will the UK have after Brexit?
In October, the British Financial Conduct Authority (FCA) announced a formal ban on the sale of cryptocurrency derivatives and exchange-traded notes to retail users. This ban was first proposed a year ago and will take effect on January 6, 2021. FCA stated that these products are not suitable for retail consumers for a variety of reasons, including the extreme volatility of cryptocurrencies. The ban applies to all companies doing business in or in the UK. Other reasons for the ban include hacking incidents, insufficient understanding, and the lack of reliable valuation basis for cryptocurrencies.
In November, the UK Treasury Department issued a statement stating that it is drafting a draft to regulate private stablecoins and is also studying the possibility of central bank digital currency (CBDC) as an alternative to cash. Although the details are not yet clear, the statement stated that the draft will require companies operating stablecoins to comply with the same minimum standards as other payment entities.
European Union
The EU’s 5th Anti-Money Laundering Directive (5AMLD) came into effect on January 10, local European time. Encrypted currency projects in EU countries must implement corresponding KYC procedures to achieve anti-money laundering (AML) and combat terrorist financing (CFT). The decree has had an impact on many cryptocurrency projects.
Obviously, more and more information shows that the EU is strengthening its international position in the field of digital finance and becoming a global standard setter.
This fall, the European Commission (EU Commission) completed its work on digital finance and will clearly define cryptocurrency in European law.
In September, according to the website of the European Commission for Digital Innovation and Blockchain Teams, the European Commission will cooperate with the European Blockchain Partnership (EBP) from more than 30 countries to test the European Blockchain Service Infrastructure (EBSI). Blockchain and digital asset use cases, and a sandbox for blockchain supervision will be launched in 2022. EBSI is a joint project initiated by the European Commission and the European Blockchain Partnership (EBP), which aims to use blockchain technology to provide cross-border digital public services throughout the EU. At the same time, the committee specifically mentioned the development of a regulatory framework that will support the digitization of assets through tokenization and smart contracts.
On September 24, the European Commission formally adopted a new digital finance package, including digital finance and retail payment strategies, as well as legislative proposals on encrypted assets. The European Commission stated that the new package is the first time the bureau has proposed new legislation on crypto assets. As part of the new legislative proposal, the European Community pays special attention to stablecoins-a type of cryptocurrency that pegs value to an external reference (such as the US dollar). Specifically, the proposal aims to introduce stricter requirements for stablecoin issuers in terms of capital, investor rights, and regulation. Among them, if the stable issuance exceeds 5 million euros (5.8 million US dollars), the European Community requires the stable issuer to complete the authorization of the national authority. In addition, the agency also hopes that the issuer of encrypted assets will publish a white paper, imposing mandatory requirements for information disclosure. Within 12 months, small and medium-sized enterprises providing crypto assets not exceeding 1 million euros (1.1 million US dollars) will be exempt from publishing the white paper.
In addition, in July this year, the European Union announced the minimum technical requirements for nodes that can participate in its blockchain service testnet. Participating nodes will test the EU’s blockchain service infrastructure code base. According to the technical specifications released by the European Commission’s Digital Connection Project CEF Digital last week, the nodes in the European Blockchain Service Network (ESBI) version 1.0 must have at least three computer hosts, that is, the host for core services and BESU and Hyperledger Two protocol hosts of Fabric blockchain.
Some EU countries’ cryptocurrency policies
·Switzerland
The Swiss canton of Zug will begin to allow citizens to pay taxes with Bitcoin and Ethereum. The canton is home to some hedge funds, cryptocurrency companies, and traders. The Swiss government stated in a statement that companies and individuals in the canton of Zug can use cryptocurrency for tax settlement, with a maximum amount of 100,000 Swiss francs (approximately US$109,700).
·Estonia
Estonia is turning its attention to money laundering from banks to cryptocurrency companies. Estonia is a pioneer in the digital field and a member of the European Union and the Eurozone. After being involved in a multi-billion dollar money laundering scandal, the country has been stepping up efforts to prevent financial crime, and its latest target is companies that conduct transactions and help customers hold virtual currencies such as Bitcoin.
·Germany
German financial behavior regulator BaFin has asked KKT UG, one of the country’s largest Bitcoin ATM providers, to cease operations. According to a report by TrustNodes, BaFin explained that Bitcoin ATM providers must obtain a proprietary transaction license in accordance with German banking regulations.
·France
The French Ministry of Finance is preparing to strengthen KYC rules for crypto companies and will also supervise all peer-to-peer crypto transactions. The French Ministry of Finance issued a decree that will mandate complete KYC for all crypto transactions (including crypto-to-crypto transactions). This means that all crypto exchanges and other companies must verify their customers, regardless of the size of the transaction.
In addition, complete KYC measures will also eliminate the benefits of “incidental” crypto transactions or one-time transactions worth 1,000 euros or less (without KYC transactions).
The other major proposed rule change is the mandatory registration of cryptocurrency exchanges. In France, the current mandatory registration rules only apply to cryptocurrency fiat exchanges and cryptocurrency custody companies. The source said that the main reason for France’s proposal to adopt stricter measures was the recent terrorist attacks in France. Two weeks before the September attack, French police arrested 29 suspected of using cryptocurrency to fund Syrian extremists.
Russia
The Russian Ministry of Finance has proposed new amendments to the country’s upcoming crypto asset law, which may reduce the requirements for cryptocurrency taxpayers. According to the draft bill, if the annual transaction volume exceeds 600,000 Russian rubles (approximately 7,800 US dollars), individuals must declare their assets. In the previous proposal, the Ministry of Finance had requested disclosure when the transaction volume exceeded 100,000 rubles (about 1,300 US dollars) within a year. The law is planned to be passed in January next year, and the Ministry of Finance hopes that the asset disclosure for the next tax year will be no later than April 30, 2022. The bill stated that the reported cryptocurrency value will be calculated by the state tax agency based on the price at the time of the transaction.
Starting next year, Russian public officials must report their cryptocurrency holdings. At the end of July this year, Russian President Vladimir Putin signed a digital financial assets bill regulating digital assets and cryptocurrencies. Although cryptocurrencies are given legal status as assets and will legalize digital asset transactions, they will prohibit the country from using cryptocurrencies. As a means of payment. According to reports, although the bill defines cryptocurrency as a property for tax purposes, it cannot be used for services such as payment for goods in Russia. The bill also contains a statement that Russian companies can issue digital securities through the blockchain, provided that they must be approved by the Russian Central Bank. The law is scheduled to take effect in January 2021.
In September, the Russian Ministry of Finance raised the reporting standards for cryptocurrencies in an upcoming legislative amendment to combat tax evasion and other financial misconduct. The department proposed to increase the reporting standards for the Russian digital asset law. Russian President Vladimir Putin signed the law in July this year and will take effect in January 2021 in an attempt to reduce cryptocurrency’s money laundering, tax evasion, and illegal activities In the impact. In addition, the proposal also stipulates that if the wallet accumulates more than 100,000 Russian rubles (approximately 1,300 U.S. dollars), crypto users will be required to report transaction history, digital wallet addresses and balances. Unreported wallets handle more than 1 million rubles (approximately US$13,000) within a year and may face penalties of reform through labor and up to three years in prison.
The Russian Ministry of Finance has drafted a new draft bill, which, if passed, will have a major impact on the country’s cryptocurrency miners. The draft states that third parties are allowed to use digital currency, create software and hardware to issue digital currency and transactions, but accepting digital assets as payment for such work is illegal. The draft may result in the acceptance of digital assets as a payment acceptance method for mining and other activities as illegal, and some miners and mines that accept digital asset payments will also be regarded as illegal operations.
Iran
Iran is becoming a country that uses cryptocurrency for value exchange at the national level.
The Iranian Cabinet revised the legislation to re-incorporate cryptocurrency into the import financing mechanism of the Central Bank of Iran (CBI). The Central Bank and the Ministry of Energy stated: “Miners should directly provide native cryptocurrency within the scope of authorization of the CBI introduction channel.” The legal upper limit of the number of cryptocurrencies for each miner will be determined based on the level of subsidized energy used for mining and the instructions issued by the Ministry of Energy. . Specifically, Iran’s Ministry of Energy and the Central Bank (CBI) issued this decree requiring the country’s legally registered cryptocurrency miners to sell the mined tokens to the Central Bank of Iran (CBI), which is the world’s first government level to use encryption A country where currency exchanges value. Under the control of US sanctions, Iran cannot use the U.S. dollar for international trade, and its foreign exchange reserves have been reduced by more than 33% in two years.
Japan
The Japanese crypto asset industry is regulated by the Financial Services Agency of Japan. The relevant laws include the Payment Service Law and the Financial Instruments and Transaction Law. The relevant amendments will come into effect on May 1, 2020. Japanese cryptocurrency trading requires an encrypted asset service provider license to provide services related to crypto assets to Japanese customers and investors.
The main highlights of the legislative amendments coming into effect this year are as follows:
-Use “crypto-asset” as a proper term referring to digital assets;
-Crypto asset service providers must store platform cash flow and customer assets separately, and need to custody customer assets through a third-party operator;
-Even if crypto asset custodians do not provide trading services, they must register company information with the Financial Services Agency;
-Spreading false rumors about a certain cryptocurrency may constitute a crime and result in penalties.
The above new regulations of the Financial Services Agency of Japan have clearly tightened the supervision of the crypto asset industry, aiming to strengthen the protection of Japanese investors.
Korea
For the past three years, South Korea has been at the forefront of cryptocurrency policy.
The Planning and Finance Committee of the Korean National Assembly passed amendments to tax laws including the “Income Tax Law” and the “Personal Consumption Tax Law”, which postponed the start of virtual currency taxation from October 2021 to January 2022. In addition, the specific content of the virtual currency-related tax law is consistent with the previous draft, that is, a 20% tax is imposed on the investment income of cryptocurrency over 2.5 million won per year. Lianwen previously reported that in July this year, South Korea released the proposed 2020 tax law amendment draft, indicating that the South Korean government will include the income obtained through virtual currency and other virtual assets into other income, and will start from October 2021 on more than 2.5 million yuan per year. The Korean won’s digital currency income is levied at a 20% capital gains tax, and those who are required to pay the virtual asset capital gains tax need to declare in May each year.
The Financial Intelligence Analysis Institute (FIU) under the Korea Financial Services Commission will make legislative announcements on the implementation regulations of the amendments to the “Law on the Reporting and Utilization of Information on Specific Financial Transactions (Special Financial Law)” to be implemented in March next year. From November 3 to December 14, a period of 40 days. It is said that the amendment will make it impossible for virtual currency operators to process virtual assets such as dark coins that have money laundering risks, and will also be unable to process transactions related to prepaid cards, mobile gift certificates and electronic bonds. The revised law will come into effect on March 25 next year. In addition, in March this year, the Plenary Session of the Korean National Assembly passed an amendment to the “Law on the Reporting and Utilization of Information on Specific Financial Transactions (Special Financial Law)”, which will be officially implemented on March 25, 2021. The amendment treats Korean domestic cryptocurrency exchanges as “financial companies” and includes regulations on anti-money laundering and cryptocurrency financing. Relevant companies need to report to the financial sector within six months from the implementation date (as of September 25, 2021).
China
·Mainland
Mainland China focuses more on blockchain.
The National Blockchain Vulnerability Database and industry security companies jointly issued the “Detailed Rules for the Classification of Blockchain Vulnerabilities.” The “Detailed Rules” are divided into “Details for Vulnerability Rating of Public Chain System”, “Detailed Rules for Vulnerability Rating of Alliance Chain System”, “Detailed Rules for Vulnerability Rating of Smart Contract”, “Detailed Rules for Vulnerability Rating of Peripheral System”, which are mainly based on “level of harm” The vulnerability is divided into three threat levels: high, medium, and low. The description of each hazard and difficulty lists very detailed reference items, which basically cover the possible encounters in the blockchain field. Most of the vulnerability situations found can help users quickly locate and analyze vulnerabilities. At the same time, relying on CVSS2.0, we strive to realize the intercommunication with the traditional basic field vulnerability rules, and open up the cognition and definition of vulnerabilities in the emerging field of blockchain and the traditional field from the perspective of large network security.
From June 22 to July 3, 2020, the International Telecommunication Union Telecommunication Standardization Sector (ITU-T) Study Group 16 (SG16) plenary meeting was held online. At the meeting, the People’s Bank of China Digital Currency Research Institute (hereinafter referred to as “Data Research Institute”) led the proposal and co-sponsored the International Standard “Financial Distributed Ledger Technology Application Guide” with China Academy of Information and Communications Technology and Huawei. “(Financial Distributed Ledger Technology Application Guideline) was successfully established in ITU-T SG16. This standard is a framework standard. Based on this, my country can develop the planning and layout of the financial blockchain international standard system, adding sub-standards such as reference architecture, risk control, security and privacy protection, and financial blockchain business specifications in various fields. The “one belt, multiple” approach promotes the standardization of ITU-T in all important aspects of financial blockchain, promotes the healthy development of financial blockchain technology and related industries, and makes more contributions to the setting of international rules.
The Central Bank released the “China Financial Stability Report (2020)”, which interpreted the central bank’s digital currency, private sector stable currency and other financial technologies in the topic “Global Financial Technology Development and Regulatory Progress”. The report also stated that the financial management department will do a good job of overall planning and coordination, strengthen the top-level design and overall layout of supervision, and accelerate the improvement of the financial technology regulatory framework in line with my country’s national conditions. One is based on innovative regulatory tools, and on the basis of summarizing the experience of financial technology innovation supervision pilots, improve the risk monitoring system, publish white papers in a timely manner, and launch financial technology innovation regulatory tools that are in line with my country’s national conditions and are in line with international standards. The second is to take the regulatory rules as the core, and timely introduce targeted regulatory rules to ensure that the financial technology business has rules to follow in business compliance, technical security, risk prevention and control, etc., and resolve regulatory gaps and regulatory arbitrage caused by lagging rules And other issues. The third is to use digitization as a means to build a digital regulatory reporting platform, adopt artificial intelligence technology to realize formalization, digitization and proceduralization of regulatory rules, accelerate the construction of digital regulatory capabilities, and enhance regulatory penetration and professionalism.
The China Banking and Insurance Regulatory Commission drafted the “Measures for the Supervision of Internet Insurance Business (Draft for Comment).” The “Measures” pointed out that Internet insurance is not only a sales channel, but also a business method and service form. It encourages the integration of insurance with new technologies such as the Internet, big data, and blockchain, and supports Internet insurance to serve the real economy and society at a higher level. .
·China Hong Kong
The Hong Kong Special Administrative Region government plans to establish a robust regulatory framework, through the Securities Regulatory Commission to supervise virtual asset trading platforms, so that high-quality virtual asset dealers can settle in Hong Kong.
On November 3, the Financial Services and the Treasury Bureau of the Hong Kong Special Administrative Region Government (Financial Services and the Treasury Bureau www.fstb.gov.hk) issued a consultation document on amendments to Chapter 615 of the Laws of Hong Kong, “Anti-Money Laundering and The Terrorist Fund Raising Regulations collect public opinions. It is recommended to establish a licensing system for virtual asset service providers, requiring any person who intends to engage in regulated business of virtual asset trading platforms in Hong Kong to apply for a license from the Securities Regulatory Commission and meet the criteria of fit and proper candidates. The licensee must comply with the The Anti-Money Laundering and Terrorist Financing Regulations and other regulatory requirements set out in Schedule 2 of the Money Laundering Ordinance to protect investors.
India
In March of this year, the Indian Supreme Court revoked the order of the Reserve Bank of India (RBI), the central bank of India, to prohibit financial institutions from providing banking services to virtual currency companies, thereby legalizing Indian cryptocurrency companies. This move promoted the vigorous development of the exchange in India. However, with the repeal of the Indian cryptocurrency ban by the court, many cryptocurrency exchanges have been launched one after another.
However, there is news that India may introduce laws to prohibit cryptocurrency transactions. People familiar with the matter said that a bill banning cryptocurrency transactions will be discussed in the Cabinet. Two people familiar with the matter said that the Indian government encourages blockchain technology, but is not keen on market transactions.
Southeast Asia
·Thailand
The Securities and Exchange Commission of Thailand (SEC) amended its net capital rules to strengthen the liquidity management of securities companies and derivatives brokers, support the surge in transactions on the Stock Exchange of Thailand and adapt to digital asset trading. The revised NC rules are expected to help securities companies planning to enter new businesses such as cryptocurrency trading to release liquidity. Some securities companies consulted the Securities and Exchange Commission of Thailand to launch a cryptocurrency exchange. In addition, Thailand’s SEC will allow securities companies operating digital businesses to hold various forms of digital assets, such as encrypted currencies and other digital assets, and calculate NC funds based on the value of these digital assets. But it needs to be increased or decreased based on asset quality. According to sources, the maximum amount of digital assets that can be calculated is 50% of the asset value. For securities companies operating digital asset business and storing digital assets for customers, NC rules require companies to keep more than 1% of funds in cold wallets (offline systems) and more than 5% of customer assets are stored in hot wallets or online systems. If a securities company also operates digital asset business, but is not responsible for retaining the digital assets of customers, it requires shareholders’ equity to exceed 500,000 baht.
·Malaysia
The regulatory guidelines for the operation of various digital currency platforms issued by the Securities Commission of Malaysia (SC) took effect on October 28. Malaysian regulators first issued these guidelines in January, proposing many rules for IEOs and digital asset custodians (DAC). It is mandatory to provide digital tokens in the country only through IEO. IEO platform operators will be required to conduct assessments and necessary due diligence on the issuer, review the issuer’s proposals and disclosures in the white paper, and evaluate the issuer’s compliance with the Guidelines and SC Guidelines for Prevention of Money Laundering and Terrorist Financing Ability. The code also imposes many other restrictions on initial coin offerings (ICOs). The maximum limit of ICO is 100 million ringgit (approximately 24.5 million US dollars). In addition, all IEO platforms operating in Malaysia need to be registered with regulatory agencies. Anyone who operates a digital exchange or provides or distributes any digital asset without SC’s authorization is a crime. Upon conviction, a fine of not more than ten million ringgits or imprisonment of not more than ten years or two Both.
Conclusion: In 4 days, the magical 2020 will be a thing of the past, looking forward to a better 2021, and also looking forward to a better cryptocurrency world.
