Cryptocurrency Regulation in Various Countries
With the rise of cryptocurrencies on a global scale, this new asset class has not only attracted the attention of investors but also raised concerns among governments and regulatory agencies worldwide. Since the birth of Bitcoin in 2009, the cryptocurrency market has experienced explosive growth, transitioning from a speculative tool to a new form of investment and payment method.
However, this transition has also brought about numerous challenges, including market volatility, fraud risks, and potential issues related to money laundering and terrorist financing. In response to these challenges, governments around the world have begun to deliberate and discuss their respective cryptocurrency regulatory frameworks in order to strike a balance between promoting innovation and protecting consumers.
Taiwan
According to the Financial Supervisory Commission’s announced cryptocurrency industry regulatory development schedule, the first to fourth stages consist of bringing VASP operators under regulation, establishing associations and self-regulatory norms, differentiated management and legal strengthening, and the formulation of special laws.
The first stage: bringing VASP operators under regulation
The first stage will start by bringing “virtual asset platform and trading business operators” (VASP) under the Anti-Money Laundering Act. According to the information on the official website of the Financial Supervisory Commission, 25 cryptocurrency operators have completed their compliance declarations, including exchanges, trading platforms, physical stores, virtual asset automated teller machines (BTMs), and custody system providers.
The second stage: associations and self-regulatory norms
The focus of the second stage is to promote the establishment of associations by VASP and the formulation of self-regulatory norms. The Taiwan Cryptocurrency Association was officially established in June, and it is developing industry self-regulatory norms based on the guidance principles set by the Financial Supervisory Commission.
The third stage: differentiated management and legal strengthening
In the third stage, the Financial Supervisory Commission will introduce a “VASP registration system” to the Anti-Money Laundering Act, clearly defining VASP and imposing criminal liability on illegal operators. VASP operators engaging in business without proper registration can face imprisonment for up to two years and a fine of up to 5 million NT dollars.
Next, the Financial Supervisory Commission plans to implement differentiated management of registered VASP based on the complexity of their business.
The fourth stage: formulation of special laws
In the final stage, the Financial Supervisory Commission has commissioned a study on the establishment of special laws for managing VASP, taking into account the regulations or recommendations from the European Union, Japan, South Korea, Hong Kong, the United Kingdom, the Financial Action Task Force (FATF), and the International Organization of Securities Commissions (IOSCO).
The research team is expected to submit the final report by the end of September and present the draft special law for public hearings by the end of the year, aiming to submit the legislation draft to the Legislative Yuan by June 2025.
North America
United States
In 2022, the United States granted greater regulatory authority to the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Currently, the SEC has been actively regulating the cryptocurrency industry and has filed lawsuits against multiple cryptocurrency companies including Ripple, Coinbase, and Binance over the past two years.
With the court’s approval of a Bitcoin spot ETF in 2023, the U.S. seems to have eased its stance on cryptocurrencies. The U.S. House of Representatives passed the Financial Innovation and Technology Act on May 22, establishing a comprehensive regulatory framework for the U.S. cryptocurrency market. This legislation not only includes consumer protection measures but also grants the Commodity Futures Trading Commission new jurisdiction over digital assets and explicitly defines the Securities and Exchange Commission’s jurisdiction over a portion of digital assets in investment contracts.
However, SEC Chairman Gary Gensler emphasized that these approvals do not signify the SEC’s endorsement of cryptocurrency assets. Regulatory agencies are still actively monitoring the industry, emphasizing that most cryptocurrency assets must comply with federal securities laws.
It is evident that the United States is seeking to balance innovation and market stability while advancing cryptocurrency regulation.
Canada
Canada does not recognize cryptocurrencies as legal tender but has been actively regulating them, becoming the first country to approve a Bitcoin spot ETF.
All cryptocurrency investment firms in Canada are classified as money services businesses (MSBs) and are required to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). All cryptocurrency investment firms and trading platforms must also register with regulatory authorities and comply with anti-money laundering and counter-terrorism financing regulations.
Europe
European Union
In 2023, the European Union introduced the world’s first comprehensive cryptocurrency regulation, the Markets in Crypto-Assets Regulation (MiCA), to establish clear standards for market participants, providing consumer protection, financial stability, and innovation.
This regulation requires all companies issuing or trading cryptocurrencies to obtain a license and, starting from January 2026, all service providers must obtain information from both parties involved in the transaction. It also strengthens regulations for cryptocurrency asset service providers, including Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) provisions.
In addition, ownership verification is required for self-custody wallets holding over 1,000 euros. The introduction of these regulations is partly due to the bankruptcy of FTX, highlighting the need to protect investors and prevent money laundering.
United Kingdom
In June 2023, the United Kingdom classified cryptocurrency assets as regulated financial instruments, requiring companies providing digital currency to obtain authorization from the Financial Conduct Authority (FCA). The UK Treasury stated that any company directly engaging with UK retail investors, regardless of location, should be required to obtain authorization.
Additionally, the Bank of England introduced regulations for stablecoins, aiming to leverage their potential for payments while protecting consumers and financial stability.
Asia
Japan
Japan has adopted a gradual approach to cryptocurrency regulation, recognizing cryptocurrencies as legal properties under the Payment Services Act and managing the exchange of cryptocurrencies and yen through the Financial Services Agency (FSA). Cryptocurrency exchanges must register with the Financial Services Agency (FSA) and comply with Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) regulations.
In 2020, Japan established the Japan Virtual Currency Exchange Association (JVCEA), and all cryptocurrency exchanges are members. Recently, they strengthened the rules for sharing customer information among cryptocurrency exchanges to address the increasing problem of money laundering.
South Korea
Cryptocurrency exchanges and other virtual asset service providers in South Korea must register with the Korea Financial Intelligence Unit (KFIU) under the Financial Services Commission (FSC).
In 2023, South Korea passed the Virtual Asset User Protection Act, formally appointing the Financial Services Commission as the regulatory authority for virtual assets, strengthening user protection. They also plan to release guidelines for listing virtual assets in April or May 2024, requiring issuers or service providers to comply with regulations to ensure user safety.
China
Since the issuance of the cryptocurrency ban, China has completely prohibited domestic trading, mining, and operations of cryptocurrencies, making it one of the strictest countries in this regard.
However, with Hong Kong beginning to embrace the cryptocurrency industry, many investors believe that this could mark a change in China’s attitude.
The Hong Kong government officially commenced the application for Virtual Asset Service Provider (VASP) licenses on June 1, 2023, requiring virtual asset service providers to submit license applications. Institutions that fail to submit license applications as required must cease their operations in Hong Kong before May 31. However, the regulations are not very friendly to exchanges, as 12 exchanges that did not meet the requirements or withdrew their license applications, including OKX, withdrew their applications.
Singapore
Singapore considers cryptocurrencies as assets but not legal tender. The Monetary Authority of Singapore (MAS) issues licenses and regulates exchanges under the Payment Services Act (PSA) and requires stablecoin issuers to meet specific standards.
In August 2023, MAS announced a regulatory framework that only allows stablecoin issuers who meet all the requirements of the stablecoin regulatory framework to use the “MAS-regulated stablecoin” label, differentiating them from unregulated stablecoins. Unauthorized tokens using the label will be penalized and placed on an investor alert list.
The enforcement agencies in Singapore marked cryptocurrency-related activities as “high risk” in a report released on the 20th of the month, indicating an increase in suspicious transaction reports and assistance requests related to criminal cases involving virtual assets from abroad, prompting the financial sector to be more vigilant against money laundering activities.
Australia
In 2019, the Australian Securities and Investments Commission (ASIC) introduced regulatory requirements for initial coin offerings (ICOs) and prohibited exchanges from offering privacy coins with untraceable transaction records. In 2021, Australia announced plans to establish a clear legal regulatory framework for cryptocurrencies and to introduce a central bank digital currency (CBDC).
Currently, Australia considers cryptocurrencies as legal properties and imposes capital gains tax on them. Cryptocurrency exchanges must register with the Australian Transactions and Reporting Analysis Centre (AUSTRAC) and comply with anti-money laundering and counter-terrorism financing obligations. Australia also plans to introduce a regulatory framework for cryptocurrencies in 2024.
Conclusion
Despite being 15 years since the birth of cryptocurrencies in 2009, governments and regulatory agencies around the world are still exploring effective regulation and use of cryptocurrencies. While promoting industry development and innovation, it is crucial to protect consumers and businesses, prevent fraudulent activities, and take measures to combat illegal use of cryptocurrencies.
Although many countries are striving to move forward in the direction of legality, compliance, and innovation while maintaining a delicate balance, this remains a challenging path.
References:
Investopedia
World Economic Forum
