As the cryptocurrency sector continues to evolve, government bodies worldwide are raising their concerns about regulations of cryptocurrency assets trading.
In May 2021, China banned any financial institutions from performing cryptocurrency transactions. In the UK, retail banks suspended any transactions towards exchange platforms out of fear of financial crimes. These recent restrictions on the crypto exchanges and markets are a sign that the industry is moving in a more regulatory-centric direction.
What is a regulated crypto exchange
Cryptocurrency exchanges have been under the radar for many controversies, mainly concerning the incidents with anti-money laundering policies and numerous hacking cases.
Whether it is classified as an exchange or alternative trading system (ATS), every platform and business need to comply with strict rules designed to protect investors and avoid destabilizing the financial system. The measurements depend on the jurisdictions it is operated in. Because Bitcoin’s value has never been linked to any real-world asset, many fundamental things underwent a radical shift in the process of interfacing cryptocurrencies with existing financial infrastructure.
According to a report from Action Fraud, £63m was stolen through fake online investments, and approximately 44.7% of those scams were related to cryptocurrencies investments. The regulatory focus is increasingly turning to the trading platform operating in the cryptocurrency space due to many exchanges facing ‘false reporting’ and ‘wash trading’ charges while others are being investigated for their questionable trading practices.
In most fast-forward countries, the regulatory frameworks focus on anti-money laundering (AML) and due diligence measures.
Multiple countries aiming for cryptocurrency regulations
Let’s take a look at some of the top cryptocurrency markets taking the lead in industry-wide regulations:
United States of America (U.S.)
In the United States of America, the Securities and Exchange Commission (SEC) uses the “Howey Test” to determine whether a virtual currency is subject to its securities laws. Except for BTC and ETH, all initial coin offerings (ICOs) are treated as securities in the U.S.
United Kingdom (U.K.)
In the United Kingdom, digital currencies aren’t treated as currencies or commodities by the Financial Conduct Authority (FCA), leaving no room for the regulator to exercise jurisdiction over them. Moreover, the FCA issues regular consumer warnings describing ICOs as speculative investments.
In Singapore, the Monetary Authority of Singapore (MAS) is not in favor of imposing an outright ban on virtual currency trading. However, it exercises jurisdiction over how the technology is used. The regulator believes that utility tokens do not require as much control as payment tokens and security tokens.
Payment Services Act 2019 (PSA) is new legislation that came into effect in Singapore on January 28, 2020. The intention behind the PSA was to bring payments-related legislation in Singapore up to date with the major innovations that had occurred in the payments industry in recent years.
Japan regulations favor cryptocurrencies, recognizing them as legal property, and the sector is under the entire supervision of the Financial Services Agency. As a result, cryptocurrencies like Bitcoin can be used as legally accepted means of payment in Japan. However, cryptocurrency exchanges operating in Japan must comply with AML/CFT and consumer protection laws.
The cryptocurrency sector still needs an international framework that regulates it. At the moment, countries have a disjointed approach to regulating this sector – if they are even regulating it at all.