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G20 Declaration Confirms Crypto Regulations, Acknowledges Bank of England

G20 Declaration Confirms Crypto Regulations, Acknowledges Bank of England

The G20 has confirmed that cryptocurrency regulations are to be implemented, as published in a Leaders’ Declaration on 1 December. The declaration also closes by thanking Bank of England governor Mark Carney for his work as chair of the Financial Stability Board (FSB).

Safety first

The meetings were held in Buenos Aires, Argentina, on 30 November and 4 December 2018. Here, the members have brought the topic of crypto-assets to the table and have firmly stated in the declaration that they “will regulate crypto-assets for anti-money laundering” purposes, as well as counter the funding of terrorism “in line with FATF standards”, with other considerations open to suggestion.

This brings a close to his ongoing relationship with cryptocurrencies and blockchain technology, one that has been extraordinarily formative for the nascent industry as well as the G20, to whom he has provided guidance and counsel to on the matter. Nevertheless, his work has laid the foundations from which positive leaning regulations can be formalized.

The Carney effect

The acknowledgment in the declaration to the Bank of England bears significance as Carney steps down from his role as of late November.

In February, the governor espoused cynical views on the success of cryptos and their broader applications; though over time, he has become a rational component of the discourse, discussing the potential of central bank digital currencies (CBDCs), and also soothing the concerns of institutions and governments, saying that digital currencies bore “no risk” to the global financial system.

Carney’s ongoing influence on the development and creation of regulations for crypto-assets for the G20 will be one to follow closely. Previously, the G20 called upon the FSB to produce a report on its crypto-asset work, which it did in July and in doing so, claimed to have developed a method to monitor the “financial stability implications of crypto-assets”.

In a letter written to G20 leaders around the time he was parting ways with the FSB, Carney reflected on the study that found “no significant risks”, though he goes on to acknowledge the growth of risk should cryptocurrency usage become more wide-spread or “linkages to the rest of the financial system grew”. He also comments on the serious issues that the crypto-assets such as “consumer and investor protection, money laundering, and terrorist financing”.

Forward thinking

Within the G20’s declaration titled ‘Building consensus for fair and sustainable development’, non-bank financial institutions are given a positive nod in a statement that eludes a typically balanced approach to disruptive technologies in the financial sector, writing:

“We look forward to continued progress on achieving resilient non-bank financial intermediation. We will step up efforts to ensure that the potential benefits of technology in the financial sector can be realized while risks are mitigated.”

At the Buenos Ares summit, the leaders also revealed aspirations to implement taxation for cryptocurrencies stating: “We will seek solutions for the international taxation issue accompanying the digitization of the economy and will continue to collaborate.”

The legacy left by Carney and the ongoing work of the FSB, G20 and other involved entities to regulate the crypto-space appears to be coming to fruition, which could prove transformative for the blockchain industry overall.

 

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G20 Calls for Universal Crypto Taxation Rules

G20 Calls for Universal Crypto Taxation Rules

Cryptocurrency and taxation have found their way among the main headlines coming out of the latest 2018 G20 meeting in Buenos Aires, alongside further commitments to fight climate change.

The G20 has now announced the desire for universal cryptocurrency taxation legislation to cover all jurisdictions within its remit with the body planning to regard itself as a “huge IT company” going forward. New laws governing the taxation of cryptocurrencies would also include further regulation as promised earlier in the year.

The current problem, which will clearly need to be overcome by some lateral and innovative thinking, is the role of international law in matters of taxation, as current ones do not allow most countries to tax companies without physical bases in that specific country. In the new declaration to commit to a cross-border crypto tax system, the G20 stated:

“We will seek solutions for the international taxation issue accompanying the digitization of the economy and will continue to collaborate.”

Previous G20 meets had already raised the topic; in its July report, the body’s Financial Stability Board (FSB) noted that previous analysis of crypto-asset markets, which included initial coin offerings (ICOs), had brought forth awareness surrounding significant challenges such as rapid market development, lack of transparency (with regard to identity and location of token issuers), as well as governing laws for white papers and gaps in data.

There continues to be some consensus from within the group representing the 20 nations about the value of innovation, although this may be limited to the respect currently being shown for the current impact of DLT and AI in the fintech space and elsewhere. The G20 has asked for further investigations to be launched in cryptocurrencies when Japan takes over the helm as chair in 2020.

Regarding cryptocurrency, the G20 repeatedly cite taking actions which are “balanced between preserving the benefits of innovation and containing various risks, especially those for consumer and investor protection and market integrity” but again AML legislation will be a focus with Japan as the next chair.

As is frequently in the case regarding the G20, it is a matter of getting all members on the same page, particularly given the current political friction between some of the member states. Europe and the UK are interested in developing such a program that they feel could combat money laundering and fraud, particularly in the case of larger organizations, but Japanese news agency Jiji has indicated that the USA and China are far more reticent to endorse such a move.

 

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G20 Crypto Report: Preserve Benefits of Innovation, Contain Risk

The G20 Financial Stability Board (FSB) is rarely upbeat when it comes to cryptocurrency and its latest report won’t disappoint, although there are indications that the regulatory board is beginning to accept that crypto is here to stay.

It states that its observations are primarily based on a “monitoring framework… predominantly based on public data” and it would be interesting to uncover exactly where this data is gathered.

The usual risks to financial stability in that crypto lacks sovereign currency “attributes” and concerns about digital currencies’ price volatility are all to be found in the report, with little reference to their benefits. It also refers to a lack of regulation due to the range of jurisdictions in which cryptocurrency exchanges operate.

The FSB is formed by an amalgamation of 68 finance departments and central banks of the G20 and chaired by Bank of England’s head Mark Varney who has expressed his concerns about cryptocurrency on more than one occasion.

The G20 financial watchdog noted in its July report that previous analysis of crypto-asset markets, which included initial coin offerings (ICOs), had brought forth awareness surrounding significant challenges such as rapid market development, lack of transparency (with regard to identity and location if token issuers), as well as governing laws for white papers and gaps in data.

This latest report has upgraded some of these concerns from early in the year calling for “vigilant monitoring” suggesting that institutionalized cryptocurrency may erode confidence in financial institutions; a clear concern being shown that banks fear an alternative option for their customers. This may not be imminent, but a likelihood that this becomes the status quo in future years is bound to concern major banking institutions around the globe, as represented by the G20 body.

However, it appears there is some consensus from within the group about the value of innovation, if not the benefits of crypto, although this may be limited to the respect currently being shown for the rising swathe of DLT in the fintech space and elsewhere. The report stated:

“FSB members have to date taken a wide variety of domestic supervisory, regulatory, and enforcement actions related to crypto-assets. These actions are balanced between preserving the benefits of innovation and containing various risks, especially those for consumer and investor protection and market integrity.”

The report also goes on to refer to the widespread use of crypto as a payment system but plays down the level of its impact in the financial and commercial sector by using the word “some”, perhaps unaware of crypto’s growing stature as a payment system:

“Importantly, crypto-assets are neither backed by any government or other authority nor are they legal tender in any jurisdiction. However, some private enterprises and some public sector entities have chosen to accept some crypto-assets as payment.”

 

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FATF President Optimistic on Global Crypto Standards

The president of the Financial Action Task Force (FATF) is positive that a global Anti-Money Laundering (AML) standard for cryptocurrencies will be soon be finalized.

Speaking with the Financial Times, FATF president Marshall Billinglsea believes that digital assets present a “great opportunity”, although a lack of concrete AML standards has resulted in the adoption of AML being a “patchwork quilt or spotty process”.

As a result, he says that international and national financial systems are at risk from “significant vulnerabilities”.

Global standards

Recently described as a “Wild West” by the UK Treasury Committee, governments are acknowledging that the crypto-asset markets are need of regulation. In a report, the committee echoed the concerns of held by many governments with regards to consumer protections, and at a minimum should give focus to that as well as AML.

Billingslea has said that a FATF meeting in October will see the global AML task force decide upon suitable standards, closing AML “gaps” across the world. He added, “It is essential that we establish a global set of standards that are applied in a uniform manner.”

Earlier this year it had been reported that the FATF was preparing to review cryptocurrency activities and establish globally binding rules by 2019, which was requested by the G20 in March 2018.

Looking forward

In 2014 the FATF released the ‘Virtual Currencies Key Definitions and Potential AML/CFT Risks‘ report, which brought to light the growing popularity of virtual currencies and future implications. Drawing few conclusions, the paper was observational and educational primarily but put vital discussions into motion.

2015 saw the FATF release another report titled ‘Guidance For A Risk-Based Approach  – Virtual Currencies‘. This served to further discussions and establish some strategy for countering AML and financing of terrorism (CFT).

It recommended that “all jurisdictions to impose specified AML/CFT requirements on financial institutions and designated non-financial businesses and professions (DNFBP) and to ensure their compliance with those obligations”.

In the FT interview, Billingslea described concerns pertaining to cryptocurrencies being used by terrorist organizations, also citing cyber-attack extortion schemes such as WannaCry as an area to be addressed.

The new rules that are intended for release this year would be an upgrade to the non-binding rules that had been approved in 2015. In October, the FATF will discuss which specific standards and rules need updating, as present ones do not officially acknowledge them.

Billingslea argues that regulations “can’t tilt too far in one direction or another” as blockchain technologies will “continue to evolve””, revealing a long-term vision for the FATF in relation to the nascent tech.

 

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What Lies Ahead for Blockchain and Cryptocurrencies, Post-Brexit?

A Britain-based CEO has suggested that post-Brexit, cryptocurrencies will benefit the UK as they have key advantages over fiat currencies.

Danial Daychopan of Crypto company Plutus, suggests that due to the pound and euro’s interdependence and the fact that they are both based on other currencies,  allows decentralized cryptocurrencies to offer a “variable and stable alternative” for both consumers and businesses in the post-Brexit UK.

The current lack of direction in Brexit negotiations has led some people to believe that a period of instability is a possibility as both Europe and the UK race towards next year’s deadline. Daychopan sees instability and lack of trust in governments and the global financial system as key to the success of digital currencies. He claims:

“…in economies that aren’t stable, we’re already seeing digital economies developing and thriving. We’re approaching a period of instability and people need to understand that cryptocurrencies are going to be a force for good, not just tokens to be speculated upon.”

In terms of where cryptocurrencies sit once Britain’s departure from the EU becomes a reality, it is still unclear how Brexit will affect the future of blockchain and cryptocurrencies in both zones. The EU including the UK, with the exception of only 6 states, has signed up to the EU Blockchain Partnership which will promote the future exchange of expertise in order to launch EU wide blockchain-based applications across the single digital market.

The EU has called for cryptocurrency regulation at both European and G20 level and would clearly like to regulate the industry from Brussels, a further possible complication for the UK. As current members of the “EU Blockchain Observatory Forum” the UK has already benefited from membership with the EU’s fintech market, now valued at $6 billion.

Kay Swinburne, Member of the European Parliament (MEP), argues that bodies such as the EU Blockchain Observatory Forum are not essential to the UK advancing its fintech impact after Brexit. The UK, with its new crypto haven Gibraltar, having advanced significantly down the cryptocurrency and blockchain route, may be well placed to withstand significant damage to its fintech markets on withdrawal.

As the UK prepares to leave the EU it is also reportedly planning to create its own crypto regulations before 2019. The EU has already passed its own blockchain resolution for a post-Brexit Europe in order to remain a global fintech hub.

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G20 Counseled on Appropriate Monitoring of Crypto and Blockchain Impact

The Financial Stability Board (FSC) has published and submitted a report to the financial ministers and central bank governors of the G20, offering counsel on frameworks for the supervision of crypto-assets as well as the impacts of blockchain.

Challenges and complications

The G20 financial watchdog notes in the report that previous analysis of crypto-asset markets, which included initial coin offerings (ICOs), had brought forth awareness surrounding significant challenges such as rapid market development, lack of transparency (with regard to identity and location if token issuers), as well as governing laws for white papers and gaps in data.

Due to the “fragmented nature” of crypto-asset markets, classification across multiple jurisdictions also imposes other challenges. Furthermore, the publication draws attention to the metrics on prices, trading volumes and volatility, speculating that there may be foul play and “prohibited practices” such as “wash trading”, “spoofing”, and “pump and dump”.

Prior to the G20 summit, the FSB had released a letter to the G20 outlining its priorities with “vigilant monitoring” of emerging risks posed by the nascent technology appearing first on the list. However, it noted that the FSB’s “initial assessment is that crypto-assets do not pose risks to global financial stability at this time”.

After the G20 summit in Buenos Ares in March 2018, the FSB was called upon by the G20 ministers of finance and central bank governors to provide a report of its work on crypto-assets as well as those of other standard-setting bodies which includes the Committee on Payments and Market Infrastructures (CPMI), International Organization of Securities Commissions (IOSCO) and the Basel Committee on Banking Supervision (BCBS).

Report summary in brief

Summarily, the FSB has now developed a means to monitor the “financial stability implications of crypto-assets” which it believes will be more reliable and complementary to data from public sources, which at present is the primary source.

The IOSCO reports to have created an ICO Consultation Network, opening up channels for dialogue regarding experiences and concerns. It is working on a support framework with the intention of developing a means to protect investors by examining domestic and cross-border risks posed by ICOs.

The CPMI reports that it has conducted “significant work” regarding the applications of distributed ledger technology (DLT) and at present is also working in “outreach, monitoring, and analysis of payment innovations”.

On the side of banking, the BCBS has been analyzing the “materiality” of banks to direct and indirect crypto-asset exposure and clarifies how to treat it, and monitor these developments in relation to crypto-assets and fintech.

The report comes as 2018 continues to be a year of global government and institutional blockchain and cryptocurrency recognition. Efforts to regulate, tax and innovate the nascent industry are being made worldwide at a feverish pace. In due time, these findings could have a profoundly positive impact on the future of the tech.

 

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South Korea Set To Adopt G20 Recommendations and Ease Crypto Regulations

The Korea Times has reported that South Korean regulators are about to ease cryptocurrency regulations in line with G20 recommendations.

Back in May, government regulators made an initial agreement to apply the G20’s “unified regulations” and classify digital currencies as assets, having agreed that the situation regarding the trading of cryptocurrencies needed improving.

It appears according to the Korea Times report that the Financial Services Commission (FSC) has now revised its guidelines for cryptocurrency exchange operators. A government official commented about the latest developments:

“The FSC made revisions to its rules to apply strengthened policies in order to prevent or detect money laundering and illegal activities because the regulator isn’t opposed to cryptocurrencies.”

Another official commented that adopting the recommendations are in the “early stages of fine tuning” but that the establishment of unified rules has its complications.

The loosening of South Korea’s current cryptocurrency regulations illustrates the degree to which the government sees the value of blockchain and acknowledges the growth of cryptocurrency in the country’s financial sector. However, security issues still remain a concern to the government. A Trade ministry official commented on this aspect of the current changes to legislation suggesting that changes would be made, “but not at the expense of safety and security.”

The government’s gradual shift towards cryptocurrency adoption will certainly give a lift to the industry in South Korea. Mainstream adoption, if it comes, will have a massive impact providing it moves beyond speculative trading, says Seoul-based technology journalist National Tax Agency:

“Global banks predict that interest in cryptocurrencies will double. We believe an increase in adoption will come when crypto-assets can be used as actual currencies rather than just speculative investments.”

Hong Eu-rak of the ruling Democratic Party has suggested that there are current discussions in the progress to lift the country’s ban on ICOs, and it has also been reported that further discussions with the National Tax Agency to develop a taxation framework for cryptocurrencies is underway.

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German Finance Regulator: Blockchain Could Be Revolutionary

Chief of the German Financial Supervisory Authority (BaFin), Felix Hufeld, has described blockchain technology as “revolutionary” while stating that he sees it as capable of turning the financial sector ”upside down”.

Speaking during an event in Berlin last week, Hufeld, president of BaFin, outlined his position on both Bitcoin and blockchain.

While holding a skeptical view on the sustainability of Bitcoin’s price and the current initial coin offering (ICO) boom, Hufeld expressed his belief that blockchains capacity to power distributed applications “could actually be revolutionary”.

Highlighting the benefits unique to blockchain, Hufeld noted: “These apps are not only safe from failures of individual computers or providers, they also promote the development of a ”blockchain economy”.

An additional advantage of blockchain Hufeld considers is its potential in providing “effective control mechanisms or trustworthy institutions” in areas such as international aid that lack dependable regulation.

It appears Hufeld’s opinions have developed since April when he stated he merely did not want to ”kill [blockchain] innovation“, as BaFin expanded cryptocurrency regulations on the pretext of money laundering concerns.

Germany’s position on Bitcoin

Earlier this week, members of the German federal government stated that they believed Bitcoin did not provide a threat to financial stability because they view the volume of cryptocurrency asset transactions as too low to have a large impact on the German economy.

However, the representatives said that they believed an increase in regulatory measures was required to control the industry, with the government considering it important to monitor this area closely at the G20 level.

The International Monetary Fund (IMF) published a report in April that cited similar reasoning as that of the German government in regards to not seeing cryptocurrencies as a threat to global financial stability.

 

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Financial Action Task Force to Create Binding Crypto Rules for G20 Nations

The Financial Action Task Force (FATF) is going to announce its new rules for cryptocurrency in June 2018. In March 2018, the G20 said they looked forward to the FATF’s review of cryptocurrency activity and committed to implement the cryptocurrency standards the FATF decides upon, and call upon the FATF to advance global adoption of cryptocurrency.

A Japanese official said the FATF would begin its cryptocurrency discussion and rule-making session on 24 June 2018. The hope is to have binding rules for cryptocurrency exchanges in place no later than 2019, in order to reduce money laundering and terrorism financing that is being facilitated with cryptocurrency.

The rules announced by FATF will have wide-reaching implications for cryptocurrency markets and activity, since the G20 includes representatives from the governments and central banks of the most powerful and industrialized economies on the planet including the United States, European Union, United Kingdom, Russia, South Korea, South Africa, Saudi Arabia, Mexico, Japan, India, Indonesia, Turkey, China, Canada, Brazil, Argentina and Australia.

In 2015, FATF released a 48-page document to give member nations guidance on how to treat cryptocurrency in order to reduce money laundering, including registering cryptocurrency exchanges, collecting identification information of exchange users, and reporting suspicious activity. However, this guidance was non-binding, and it was left up to each nation’s discretion on what they should do to handle cryptocurrency activity.

FATF will analyze the effectiveness of the 2015 guidelines, discuss how to improve the guidelines especially when considering new technology that has been developed in the meantime, and how to deal with nations like India and China that have outright banned cryptocurrency trading.

IT could get China and India to legalize cryptocurrency trading according to new binding guidelines. Japan hopes to lead the creation of these new cryptocurrency rules issued by FATF and has been very positive towards cryptocurrency. Japan will take leadership of the G20 in 2020.

 

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G20 Hands On Crypto Discussions At Washington Today

Global economic leaders are meeting today in Washington DC for the Second G20 Meeting of Finance Ministers and Central Bank Governors, with cryptocurrency regulation firmly on the agenda.

As a follow-up to the Buenos Aires G20 meeting in March, where the need for a global plan for cryptocurrency regulation was initially discussed, more talks on the matter are set to take place in Washington.

The previous meeting of the world’s 20 largest economies reached some agreement, in terms of state leaders recognizing the importance of cryptocurrencies and their role in revolutionizing many banking procedures. The G20 has previously stressed the necessity to prevent the crypto industry from being misused by malicious agents, fraudulent schemes and other criminal activity.  However, members also stressed the need to not hinder the development of the technology through regulation.

The IMF and the World Bank Group will also be participating in the meeting that will be attended by 55 delegations, whose heads include 22 finance ministers, 18 central bank governors, and 9 international organization leaders.

The G20 had previously stated that this July was the date set for a package of recommendations to be put forward regarding cryptocurrency regulation, and June when the first practical proposal for crypto regulation must also be presented. In March, Italian central bank governor Ignazio Visco commented that he expected the recommendations would be overseen by the International Organisation of Securities Commissions (IOSCO).

Speaking after the Argentina conference, a senior Japanese official said, “Many G20 members didn’t take crypto-assets too positively”. The official acknowledged that “some form of regulation was necessary” and suggested finding agreement between nations with varied interests and circumstances could be difficult.

Brazil’s central bank president Ilan Goldfajn said that cryptocurrencies would not be regulated in his country and Brazil may not agree to any regulations that are outlined by the G20 on crypto assets.

France agrees on the need for regulation and has already banned deposits and loans made in cryptocurrencies. It is likely that not all nations will take such extreme measures in regulating the use and trading of digital currencies.

The Financial Action Task Force (FATF) has been given the task of addressing regulatory issues as the talks progress over the course of 2018.

 

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