Category Archives: Cryptocurrency Regulation

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Lithuanian Ministry of Finance Reveals Guidelines on ICO Tokens

The Lithuanian minister of finance considers the country to be in the “middle of explosion of ICOs and blockchain based projects”, as the ministry published a thoughtful guideline document that acknowledged “the brave new crypto economy world”.

In the document, the guidelines bring to light how cryptocurrencies should be regulated and taxed. It outlines that they are recognized as having the characteristics of securities, although for tax purposes, it doesn’t mean that they will necessarily be treated the same way.

The ministry of finance also splits cryptocurrency classifications into two parts regarding the recommended frameworks, which depends on whether a token “grants profits or governance rights”.

This applies to investors who acquire tokens through initial coin offerings (ICOs); though the existing legislature applies to “payment tool” tokens or access to particular products, the report recommends that several regulatory standards should be applied if a token grants profits or governance rights.

The ministry report breaks down ICO tokens into a variety of areas such as tokens that are issued, the ICO operator, if it participates in secondary market exchanges and whether the ICO is a crowdfunding activity.

Regarding taxation and asset class, the report reads:

“In terms of Corporate Income Tax and Personal Income Tax, according to the substance and economic sense of transactions, the virtual currency is recognized as current assets that can be used as a settlement instrument for goods and services or stored for sale.

For the purposes of VAT, the virtual currency is considered as the same currency as euros, dollars etc. For the purposes of other taxes, other type of instrument, e.g. certain types of tokens, may be recognized as a virtual currency as well.”

Earlier Discussions

In October 2017, the Lithuanian Central Bank issued an “approved position” on virtual currencies. Marius Jurgilas, Member of the Board of the Bank of Lithuania, described them as “an instrument involving high risk”. He went on to say that financial institutions that were operating legally and arewerealso under the supervision of the Bank of Lithuania “must strictly disassociate themselves” from them.

The October 2017 document raises awareness for financial services who engage in cryptocurrencies, the document had the intention to inform that these activities leave them open to the possibility of financial crimes, terrorism financing etc.

The report suggests that should financial market participants wish to do so, they would need to adhere to strict compliance requirements to prevent such matters.

However, in April 2018, the Central Bank of Lithuania began crucial discussions exploring the uses of cryptocurrency, engaging with commercial banks, government regulators and traders with the goals of creating a faster and affordable means to license the operation of ICOs.

The Baltic state of Lithuania is host to approximately 3 million inhabitants and, much like other small economies such as Malta and Gibraltar, it has successfully been an early adopter of cryptocurrency and blockchain projects. Should it manage to implement these guidelines, Lithuania will be a positive frontier for cryptocurrency and blockchain-related projects.

 

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UK FCA Probes 24 Crypto Businesses in ‘4th Most Crypto-Friendly Nation’

The Financial Times reported that the UK’s Financial Conduct Authority (FCA) has launched an inquiry into 24 “unauthorized” businesses that are involved with cryptocurrencies; additionally, they are investigating several related whistleblower reports.

Through a freedom of information request made by accountancy and consulting firm, Moore Stevens, the FCA has revealed that it is attempting to determine whether the businesses in question may be “carrying on regulated activities that require FCA authorisation”. While these aren’t formal investigations, the FCA could begin them should it discover or determine that there is a reason to.

So far in 2018, seven whistleblower reports relating to cryptocurrency have been made with no public outcomes yet. The statement mentions that there were no similar reports made between 2014 and 2017.

The United Kingdom was ranked fourth out of 48 other “crypto-friendly” nations, according to a study made by Blockshow Europe in which the UK had been praised for its “importance as a European hub for cryptocurrencies”.

The FCA does not regulate cryptocurrency exchanges, brokers or businesses, which gives them a grey area status and some freedoms. However, it has been pushed by the British Cryptocurrency Trade Association, the UK’s first self-regulatory blockchain industry trade body, to begin regulating the industry.

A brief timeline of events

In April, the FCA Business Plan 2018/19 was released with cryptocurrencies and blockchain technology receiving a fair amount of attention in the report. It did not come as a surprise considering that the UK is home to significant projects such as blockchain.com and Parity; furthermore, the self-regulatory cryptocurrency organization CryptoUK had plans to work with the UK government to assist British blockchain startups, making sure they were in compliance with AML and KYC regulations.

From this, the FCA, Bank of England and UK Treasury will be working together to publish a discussion paper which is due to be released in 2019.

Bitcoin News reported in early May that CryptoUK had also approached UK members of parliament seeking to create the appropriate frameworks for the industry to thrive in, as well as “reducing consumer risk and improving industry standards”, according to chair of CryptoUK, Iqbal Gandham.

Crypto-maturity in the UK

The FCA will “continue to monitor the appropriateness of the existing regulatory framework”, which should prove comforting to British banks who have been very wary of dealing with cryptocurrencies or businesses involved with them. This stems from the difficulties with running anti-money laundering checks on their transactions, which is something the European Union is firmly addressing.

Efforts made by the British financial watchdog and its collaborations with government branches indicate that the United Kingdom is to become a significant player in the global movement to create industry regulation frameworks and business innovations.

 

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Bithumb Bans Users from 11 ‘High-Risk’ Countries

South Korea’s largest exchange Bithumb will no longer be accepting new users and removing existing ones from 11 countries presently under investigation by the Non-Cooperative Countries and Territories (NCCT) Initiative. Countries included on the NCCT list are North Korea, Iran, Iraq and Sri Lanka. This was announced by Bithumb on 27 May and reported by local news outlet Yonhap News on 28 May.

Global responsibility

Outlining the move, Bithumb says it is acting as part of “global anti-money laundering efforts”, later adding that “NCCT users will be prevented from using the exchange so that cryptocurrency is not used to fund international terrorism”.

NCCT countries are ones that have been identified by the Financial Action Task Force on Money Laundering (FATF) as being regions which are lacking significant anti-money laundering policies and regulations, as well as their use of these funds for illegal operations.

Bithumb is the largest cryptocurrency exchange in South Korea and fifth largest in the world by trading volume. Taking this stance reveals the intents of the trading giant; to remain compliant not only with the laws and regulations within South Korea but also with that of the global community, reducing the risk of any conflicts with local and international regulators.

Furthermore, to reinforce this, the development team at Bithumb are soon to implement new procedures for foreign users, requiring them to undergo a mobile verification process, preventing users from being able to falsify personal information such as their address.

A Bithumb spokesperson told Yonhap, “The Bithumb team will voluntarily impose strict policies and cooperate closely with local financial authorities to increase the transparency in the cryptocurrency market and protect investors. With progressive voluntary policies, Bithumb will improve the global standard of cryptocurrency exchanges.”

Efforts elsewhere

The regulatory wheel is spinning at quite some pace all over the world. Discussions of how to classify cryptocurrencies for purposes of taxation and regulation frequently appear in the news and the recent move by Bithumb is reflective of this crucial period in the industry.

Cryptocurrencies and initial coin offerings are two facets of the blockchain industry that have regularly faced scrutiny from all corners of the globe. India, for example, had previously and very cautiously approached the technology, but is moving toward creating the necessary taxation framework to thwart illicit cryptocurrency activities.

Recently, the European Union introduced know-your-customer regulations to cryptocurrency exchanges, which are a means also to counter crypto-related illegal activities that are often enabled by the anonymous nature of cryptocurrencies. France has been a leading force in the European crypto industry, with positive regulation discussions and taxation law reviews that paint a bright future for the industry.

The latest move by Bithumb should reinforce the efforts made by the global community. The South Korean exchange’s latest action is rather significant considering the country’s increasingly positive blockchain industry developments.

 

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Crypto Skeptic India May Apply Tax Laws on Crypto in Possible Turning Point

Anonymous sources in India are suggesting that the crypto-sceptical nation may be at a turning point with the possibility of a goods and service tax (GST) on cryptocurrency trading.

Bloomberg reported that the government might be applying an 18% GST as there is a chance that the Indian government could classify cryptocurrencies as a supply of “intangible goods” and, therefore, making them subject to the tax levy with separate laws to be introduced that address the use of cryptocurrencies for illicit activities.

The proposal is reportedly being considered by Central Board of Indirect Taxes and Customs which, according to the anonymous source, will be presented before the GST council one it is finalized.

The source makes the case that the income tax department had realized critical nature of taxing digital currencies sooner than later. This is due to the digital asset markets growth which can build up significant liabilities, making recovery difficult in the future.

Early turbulence

The news is oddly contrasting with previous reports that have emerged from India, with April a particularly turbulent period. Earlier in the month, Bitcoin News reported that the Reserve Bank of India (RBI) was prohibiting all banks and financial entities from “facilitating transactions involving cryptocurrencies”, a move that sparked a petition that received 17,000 signatures, backed mostly by younger users who were employed in the blockchain industry.

Bitcoin bull Tim Draper chimed in during the April maelstrom, suggesting that the Indian government’s prohibitions against cryptocurrency would be “stifling innovation”. With that said, in May, Bitcoin News reported that despite the clampdowns, India has a wealth of crypto-savvy software developers that are more than capable of pushing innovation in the country. A study made by Indian HR company, Belong, brought to light the 5,000-strong developers who could drive the industry forward for India.

Efforts to create the taxation and regulatory frameworks were underway in late March when the largest tax filing platform began making inroads toward building appropriate regulations; the attempt to clarify cryptocurrency laws came shortly after exchanges and cryptocurrency traders came under significant pressures from the RBI and other banks.

Tackling cynicism

The decision to apply the taxation laws on cryptocurrencies hinges largely on the outcomes of the ongoing regulatory efforts being made by the department of economic affairs. Indian crypto exchanges believe a complete ban would be “futile” as the RBI not allowing for banks to transact with them would force buyers and sellers to other means of settling trades. This could contribute to illegal activities and, therefore, cause the ban to come down even harder on the industry.

Treating cryptocurrencies as goods and services may allow for the undeniably lucrative market to stay in force in India. Classifying them as currencies, however, would require changes in the law.

Should a positive consensus be reached through the appropriate classification, taxation and consequently, regulation standards, then India could soon follow in the footsteps of other countries embracing the technology.

 

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British Cryptocurrency Association CryptoUK pushing UK Government to Regulate the Industry

British cryptocurrency trade association CryptoUK is urging MPs and the UK Treasury to regulate the industry in the country.

The self-regulatory body made up of eight members has been approaching influential MPs, seeking support for its proposals to have the market regulated by the United Kingdom’s Financial Conduct Authority (FCA).

Earlier Developments
As previously reported by BitcoinNews, the FCA  is taking cryptocurrencies into serious consideration for future discussions, as outlined in their 2018/19 Business Plan; MPs, the FCA and the UK Treasury Committee will be examining the potentially disruptive impact of blockchain and cryptocurrencies on financial institutions and financial infrastructure.

That said, they’ll also be inquiring into the future benefits of the technology, with UK MP Matt Hancock echoing positive sentiments toward the sector. At the London Blockchain Conference in mid-April, a point noting the UK Government’s Digital Strategy, is revealing of a real capacity to which the UK could become “the best place in the world to start and grow a digital business and to trial new technologies like blockchain”.

CryptoUK Advances Discussions
Chair of CryptoUK and UK managing director at trading platform eToro, Iqbal Gandham said:

“Introducing a requirement for the FCA to regulate the ‘on-off’ ramps between crypto and fiat currencies is well within the remit of HM Treasury. Based on our analysis, this could be achieved relatively easily, without the need for primary legislation, and would have a huge impact, both in reducing consumer risk and improving industry standards.”

The group believes that regulation should give focus to exchanges, brokers and trading platforms instead of the actual cryptocurrencies themselves; furthermore, they propose that the HM Treasury should draw up new permissions for FCA to control cryptocurrency investment.

CryptoUK is also proposing that FCA should be responsible for licensing approved exchanges and enforce new rules including anti-money laundering practices, examination of investors and operational standards.

Blockchain Technology “Pixie Dust” and “Magic Wands”
Contrary to the positive stories emerging from the United Kingdom in recent weeks, think tank director of the Center for Evidence-Based Management, Martin Walker, spoke at a Treasury Committee hearing on blockchain in the financial system, claiming:

“All that it takes to make a credible idea into a fad is people just switch off their brains and stop thinking. Over 20 years in and around the banking industry — blockchain is a fad, but I have seen many fads in my career. If 10 percent of what I’ve heard in my career had come true, we would have these amazing banks that run for £1 a week.”

What Walker fails to address is the far-reaching impacts the technology has beyond that of its predominant financial functions, and that the UK is taking proactive steps to fund and develop blockchain startups.

 

 

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