Crypto regulation is on the radar of most large nations of the globe. In fact, most countries have looked at crypto regulation in terms of legal implications or regulating DLTs, virtual currencies, and ICOs. Most countries get caught up in definitions, where other area attempting to adopt it to current national/state laws. What is certain is that blockchain companies, exchanges continue to flourish and this traction is bringing forth more legal guidelines by which founders and investors should be conscious of.
This article covers the generic approach presented by a few countries however it is important to note that this landscape is constantly changing. (Time of writing March 2019)
Crypto Regulation in the US
ESMA, SEC, FinCEN all issued warnings to consumers and investors between 2016–2018, to treat ICOs with extreme diligence. However, the BIS Quarterly review proves that ‘’‘authorities’ unspecific general warnings have no effect’’. The US approaches ICOs in particular with a restrictive approach pushing most cases towards registration of being a security as seen with the Bitlicence in the state of NY.
The State of Wyoming however is moving fast in the ‘right’ direction and proving to be a much more open state to blockchain centric operations. It’s certainly worth following Caitlin Long who has been instrumental to this movement
Crypto Regulation in Singapore
Singapore’s MAS remains an ICO friendly country giving high focus to AML. The published their guidelines in August 2017, which shared who issuance of digital tokens would be regulated in Singapore. They state that there is no connection to the SFA (securities and futures act) unless the token is associated with the ownership or a security right.
A key factor about MAS is that they are focusing on collaborating with other regulators to build a healthier ICO/token ecosystem.
The MAS offers some flexibility as well for smaller ICOs who are looking to raise under 5M SGD in 12 months as a private placement (only institutional and accredited investors)
They also have a sandbox approach that has seen the emergence of a company called PolicyPal who successfully raised $20M in their ICO.
Crypto Regulation in Gibraltar (EU)
Gibraltar focused on creating their own DLT regulation. They have 9 principles and the present a flexible and adaptable approach towards DLTs and ICOs. Brexit could be interesting for this regulator in particular, given that currently within the EU makes them have to follow EU standards/laws to the tee.
Crypto Regulation in Malta (EU)
Malta created their own laws; the Virtual Financials Act and Innovation technology act covering securities and technology arrangements.
The FIT (Financial Instruments Test) is used by VFA Agents (certified groups of individuals) who are the only persons who can present cases to the MFSA for regulatory certification. Whilst the law is in place we have yet to see a regulated company out of Malta, however, it is assumed that this will happen before the end of H1.
Crypto Regulation in the United Kingdom
The UK rather than regulating has taken the approach to look and observe first. With private entities like CryptoUK heading up a ‘code of conduct’. They have also used Sandboxes to help understand how blockchain companies can work within their current legal framework.
At this stage, if an ICOs has the same characteristics as an IPO, crowdfunding, or collective investment scheme, where its tokens are classified as transferable security then they are subject to the prospectus regime and must follow the process presented by the FCA.
It’s worth noting that the FCA does recognise that DLT has some unique properties that can operate beyond existing regulation
An example of sandbox company success is capital markets blockchain startup Nivaura who has raised a total of $20 million with the closing of its second seed extension round led by the London Stock Exchange Group (LSEG). Previously, the exchange operator worked with Nivaura on the issuance of tokenized securities as part of the regulatory sandbox program of the U.K. Financial Conduct Authority (FCA). (reference)
Crypto Regulation in Switzerland
FINMA of Switzerland published guidelines for ICOs and announced its intentions for the introduction of the new Financial Services Act (FinSA) in 2019. FinSA will identify the prospectus requirements in Switzerland and integrate such requirements as part of the supervisory law. This could result in ICOs being classified as financial products’’[reference].
Much more will be seen from Switzerland when the proposed regulations come into law in 2020. We remain hopeful that the cryptovalley community and key influencers in the crypto space will be able to influence the approach taken by this regulator
Other relevant Regulatory Opinions/Approaches
‘’Proper regulation of these entities will remain a pillar of trust’’ (Christine Lagarde, IMF 2018) This statement is very important to the sector, some even say that for crypto, ICOs, etc to become global the best international body to take on global regulation or set standards might be the IMF.
European Banking Authority
To counter the thought above when it comes to the IMF as a global regulator… the EBA’s long term approach is that of a ‘Scheme Governance Authority’. That said a more immediate regulatory response is that the ‘EBA recommends that national supervisory authorities discourage credit institutions, payment institutions, and e-money institutions from buying, holding or selling VCs, thereby ‘shielding’ regulated financial services from VCs’. (EBA — Opinion on Virtual Currencies) This mindset is highly limiting to the industry at present
In its mandate, the EBA would then be responsible for the push forward new legislation or amendments towards the European Union Law.
However as we see time is of the essence and this only becomes more difficult to do when EU member states are moving forward with national approaches based on their own interpretations and announcing national laws, guidelines, etc.
EU Action Plans
- EU’s Fintech Action Plan (Incentives for crowdfunding)
- EU’s Consumer Financial Services Action Plan (cross border KYC)
Action plans remain important to the EU as a whole. Unfortunately, action plans tend to move a bit slower than the industry so, despite the good intentions and willingness to build structure, timeliness is not working in favor of EU countries or companies looking for bold direction.
Highly recommended read on International Regulatory Positions