Blockchain Regulations: Recent Key Developments

In today’s post, we will summarize some of the most important developments in blockchain regulations around the world. As there is no one and established set of rules but a plurality of approaches, it’s important be mindful of those. 

The regulations we’re going to cover today were chosen by the professor of our Global Master’s in Blockchain Technologies Guenther Dobrauz for his presentation on blockchain and the legal world that he gave at the Global Blockchain Summit. For him, the potential of the technology itself is not the only part needed to succeed in a regulated market. Getting the regulative design right is vital for the technology to live up to its potential. “Without embracing the regulatory part that accompanies the innovations, we won’t get anywhere,” he concludes.

Without further ado, let’s see how 2019 has changed the crypto and blockchain regulations arena:

Blockchain regulations around the world

United Kingdom: Financial Conduct Authority announced new restrictions on crypto assets in compliance with the 5AMLD

In November last year, UK’s Financial Conduct Authority (FCA) issued key instructions for cryptoasset-related businesses ahead of the European Union’s Fifth Money Laundering Directive (5AMLD). FCA announced itself as the anti-money laundering and counter-terrorist financing (AML/CTF) supervisor of UK crypto businesses who all must register themselves by 10 January 2020.

The regulation is relevant to a range of businesses, such as issuers and creators of crypto assets, firms marketing crypto asset products and services and buying and selling them;
firms holding and storing crypto assets, investment managers, investment exchanges and trading facilities.

Even though much of 5AMLD’s content updates the 4MLD, there are new measures introduced. For example, 5AMLD imposes reporting obligations by giving Financial Intelligence Units (FIU) the authority to obtain the addresses and identities of owners of virtual currency and, in so doing, eliminate the anonymity associated with the use of cryptocurrency.

United States: New legislation proposes to exclude crypto from securities law

In 2019, Congress introduced 22 bills addressing cryptocurrency and blockchain policy that could be considered in 2020. However, we can identify three main public policy areas: how cryptocurrency might be used in a wide variety of very dangerous activities, how companies can use cryptocurrency and blockchain in business models within the current regulatory framework, and, finally, how distributed ledger technologies might be utilized by the U.S. government itself.

Another important step was that of reintroducing the token taxonomy act to exclude crypto from securities laws. This act also pursues the introduction of regulatory certainty for businesses and regulators.

Bermuda: The pro-crypto regulatory environment has led to many companies expanding to the island nation.

The current government of Bermuda has undertaken to create new economic pillars for the country and has identified financial technology as one of the areas with the biggest potential.
With that aim to capture a wide range of cryptocurrency-related activities and to implement a comprehensive regulatory regime, in 2018, the government started to work on a new Digital Asset Business Act (has been passed by the Bermuda Parliament and is awaiting royal assent) and regulated initial coin offerings under a separate regime.

The pro-crypto regulatory environment has led to many companies expanding to the island nation. And, as of October 2019, Bermuda now accepts payments in USD Coin (USDC) for taxes, fees and other government services.

Gibraltar: Taking the lead in the global DLT regulation space

Gibraltar was the first jurisdiction to introduce a purpose-built Distributed Ledger Technology (DLT) regulatory framework. These regulatory principles include risk management processes, effective corporate governance, and security controls to combat financial and cybercrime.

Since 1st January 2018, any firm in Gibraltar, that uses distributed ledger technology (DLT) for storing or transmitting value belonging to others (DLT activities), needs to be authorized by the Gibraltar Financial Services Commission (GFSC) as a DLT Provider. Being a DLT Provider comes with many obligations: maintaining adequate financial and non-financial resources, ensuring that all systems and security access protocols are maintained to appropriate high standards, etc.

Adapting a new approach and taking a lead in the global DLT regulation space is a result of the combined effort from government, industry leaders, and educational institutions. Cultivating the right conditions that resonate with a community of global DLT platforms has opened the door to blockchain companies who search for stability and guarantees.

France: Regulators provided further digital asset clarity within PACTE Bill

The PACT Bill of Law voted on April 11, 2019 foresees a new framework for Initial Coin Offerings (ICOs) and Digital Assets Service Providers (DASP). All service providers who wish to provide digital assets custody services to third parties or to purchase/sell digital assets in exchange for legal tender are subject to mandatory registration with the Autorité des marchés financiers (AMF).

The goal of the bill was to reinforce the powers of AMF to protect the investors. From a legislative standpoint, the PACTE law is a real breakthrough. Also since it has taken into account the existing rules that have been shown to work in particular in other fields of finance, and adapted them to a new paradigm.

Switzerland: FINMA continues to provide guidance, new blockchain Legal Framework in the making.

In 2019, Switzerland published a draft bill that includes three crypto-friendly initiatives and the government has been working towards a comprehensive blockchain strategy. First, it has established a legal framework to grant the rights of those active in digital assets. There are now also proscribed bankruptcy rules related to cryptocurrencies.

Thirdly, Switzerland has now two licensed ‘bitcoin banks’. In August 2019, Swiss Financial Market Supervisory Authority (FINMA) issued banking and securities dealers’ licenses: SEBA and Sygnum AG. Before that many cryptocurrency and Bitcoin businesses struggled as mainstream commerce kept their doors shut and working with traditional banks wasn’t an option.

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