Historically, cryptocurrencies have either been ignored by regulators or banned, perhaps in the belief that cryptos have no long-term role or that they are only used for questionable activities.
However, digital assets (including cryptocurrencies) are increasingly being used by governments and multinational corporations as well as millions of investors for very legitimate purposes.
Regulators respond by introducing regulations and guidance, which is absolutely necessary to keep the “bad actors” at bay.
In June 2021, in the United States, Texas Governor Greg Abbott signed a new law – the Virtual Currency Bill – which came into effect on September 1, 2021. This resulted in the State of Texas will now legally recognize virtual currencies, including digital ones. currencies.
This makes Texas the second state after Wyoming to recognize cryptos. The fact that Texas now recognizes cryptos legally is further proof of how digital assets are embraced. It also helps to partly explain why (along with the cheap power supplies from Texas) so many Bitcoin mining companies that fled from China are now moving to Texas.
However, regardless of this, companies engaged in crypto business remain in the sights of US regulators. According to the Wall Street Journal, the Securities and Exchange Commission (SEC) is investigating Uniswap Labs, the organization behind one of the largest DeFi platforms in the world.
Some publications, like Coiniodol, have indeed asked the question: “Is the US SEC at war with cryptocurrency activities? “ There is no doubt that this stems from SEC investigations into some of the top crypto firms such as Binance, Coinbase, and Ripple.
Challenging traditional finance
DeFi platforms potentially challenge many traditional financial services, such as lending, borrowing and insurance, as well as investing, and have proven to be very popular with retail investors. In order to gain institutional appeal, DeFi platforms should ideally be authorized and this is the path taken by Swarm Markets, itself regulated by the German regulator BaFin since 1st July 2021.
Here in the UK, there has been a lot of frustration regarding the length of time it takes for the FCA to review applications for companies to list on the FCA crypto ledger. As of January 10, 2020, companies doing crypto business in the UK were required to register with the FCA and prove that they have systems and procedures in place to comply with the 2017 Money Laundering Regulations, terrorist financing and remittance (MLR).
While the FCA has granted temporary registration and allows existing companies that were running MLR crypto business before January 2020 to offer crypto trading services, the FCA’s initial deadline to review these 100+ companies has been extended until ‘as of March 31, 2022. Companies that have been granted temporary registration include Revolut, Fidelity Digital Assets, Copper, eToro and a subsidiary of the huge Chinese digital asset platform, Huobi.
Due to the FCA’s delay in granting permission to offer crypto business to UK citizens, more than 60 companies are believed to have relocated outside the UK. In addition, lawyers in the UK argue that it might be illegal to promote non-fungible tokens (NFTs) to UK citizens, as some NFTs are backed by physical assets and can therefore be viewed as security. However, the FCA is slowly granting business registration and adding them to the FCA crypto ledger. On August 26, Coinpass – a UK based company that buys and sells cryptocurrencies was successfully added to the FCA crypto ledger.
He also recently agreed that another company, Ramp, be allowed to enter the FCA crypto ledger. Meanwhile, according to FCA, also in the UK: “On June 25, 2021, the FCA placed demands on Binance Markets Limited. The company has complied with all aspects of the requirements. See our watch notice. See the FCA Registry for all requirements that apply to the business. These requirements remain in place and BML is still unable to operate regulated activities in the UK..
Concerns about Binance
One wonders if this FCA announcement will reassure other regulators expressing concerns about Binance, especially regarding AML / KYC procedures.
Interestingly, according to a recent article we posted on LinkedIn regarding the FCA’s addition of companies to its crypto ledger, we have garnered considerable interest not only in the UK but also across the board. international, as you can see in the different jurisdictions below.
This interest from various jurisdictions serves to underscore the global nature and interest in cryptos and how they are regulated. While professional advice should always be taken before conducting any business in a country, Global Insights has a comprehensive summary for different countries with regards to the legislation in different jurisdictions around the world.
Jeffrey Wang, Amber Group, a Canadian crypto-finance company, recently said: “Regulation is possibly one of the biggest overhangs in the crypto industry globally. “
The Asia Securities Industry & Financial Markets Association (ASIFMA) – a regional trade association – produced a report titled “Tokenized Securities in APAC”. This report contains interviews with the Hong Kong Securities and Futures Commission, the Bank for International Settlements, Blockchain technology company – R3, Switzerland’s SIX Digital Exchange, and the Singapore Exchange (SGX).
Appreciate the advantages
The report found that the market is starting to appreciate the benefits of digital assets. In addition, there have been a number of projects such as Deutsche Bank and Singaporean fintech company Hashstacs, which have announced their intention to start issuing digital bonds.
HSBC Singapore and Marketnode, the joint venture between SGX and Singaporean sovereign wealth fund Temasek, have revealed digital bond fulfillment using Marketnode’s platform.
Crypto Regulatory World Map
The lack of regulatory clarity not only deters some private clients, but is a huge barrier for institutions to engage in cryptocurrencies. However, despite this, we continue to see an increase in interest and indeed transaction volumes for digital assets in various forms such as DeFi tokens, NTFs, and cryptocurrencies.
Regulators must somehow try to keep pace with this rapidly changing industry; especially difficult when most new platforms are decentralized, making it very difficult to determine who is really responsible if something goes wrong.
There is also the added complication of companies such as Sky Mavis, (based in Vietnam), which developed Axie Infinity, itself now one of the highest-grossing blockchain games in the world according to ranking provider. decentralized applications, DappRadar.com. Axie Infinity has players all over the world buying and selling NFT / crypto assets and making hundreds of millions of dollars per day.
It will be interesting to see if regulators turn a blind eye to such activity or will we see some, like the SEC, end up cracking down on these companies in the same way the SEC seems to be doing with Uniswap?
Charles Randell, President of the FCA in the UK, recently said in a speech to read: “Good financial regulation supports innovation, productivity and economic growth. In regulating the online world, we need to strike the right balance between fostering innovation, providing an appropriate level of protection and allowing individuals the freedom to make the decisions for which they are responsible.”.
The challenge is to find the balance between not stifling innovation but maintaining confidence in the financial system, while protecting investors.
At first glance, it seems impossible for a regulator to be able to authorize a truly decentralized organization. Essentially, oversight and conduct is done by the members for the members, so it is hoped that they will have the best interests of those who use their platforms at heart.
Additionally, it is encouraging to see regulators engaging and discussing the challenges of regulating digital assets. Jurisdictions that are truly in a position to embrace digital assets may well see plenty of companies making their way to their doorstep, generating jobs and taxes for the economy as a whole.