Inventory | These policies affected the cryptocurrency industry in 2020

For the cryptocurrency industry, 2020 is a year full of opportunities and challenges.

This year, we have experienced many unexpected disasters: the outbreak of the new coronavirus, four circuit breakers in the U.S. stock market in two weeks, the 312 crash in the cryptocurrency market, black swan events in exchanges... The market is filled with a strong atmosphere of uncertainty.

This year, many things are turning in a positive direction: PayPal supports Bitcoin trading, Ebang International is listed on Nasdaq, Filecoin is launched, cross-chain, ETH2.0 is constantly updated and developed, and the market infrastructure is accelerating. The entry of technology and financial giants shows that the trend of encrypted assets is irreversible; DeFi and NFT show the strong innovation and self-growth ability of the encrypted market...

However, in the process of rapid development of cryptocurrency, there are also many hidden dangers under the hot trend. For the cryptocurrency market that has developed disorderly for many years, the regulatory authorities play a key role in supervision and regulation. Every move of the regulatory authorities is also closely related to the future development of the industry.

As the year draws to a close, Golden Finance has compiled the policies released by major countries in 2020.

USA

Compared with three years ago, the United States' regulatory policy on cryptocurrencies is becoming clearer.

The IRS, the Securities and Exchange Commission, and state governments have all introduced regulations on the management of cryptocurrencies.

In October, the U.S. Department of Justice released a cryptocurrency law enforcement framework on its official website. It provides a comprehensive overview of new threats and law enforcement challenges related to cryptocurrencies, and explains the importance of the U.S. Department of Justice establishing cooperative relationships with other government departments and regulatory and law enforcement partners around the world, as well as response strategies. The first part of the framework divides the illegal use of cryptocurrencies into three categories: 1. Financial transactions related to crime; 2. Money laundering and enabling legal activities to evade taxation, reporting or other legal requirements; 3. Crimes, such as theft. The second part explores the various legal and regulatory tools that the government can use in the face of crypto threats, and the third part discusses the challenges the government faces in criminal activities that cryptocurrencies may promote.

On October 30, two bills passed by the U.S. Energy and Commerce Committee, the Digital Taxonomy Act and the Blockchain Innovation Act, were passed by the U.S. House of Representatives and will be submitted to the Senate for deliberation. The Digital Taxonomy Act provides definitions for "digital assets" and "digital units" and will require the Department of Commerce and the Federal Trade Commission (FTC) to report on recommendations on digital token deception and other behaviors. The Blockchain Innovation Act will require the FTC to prepare a report on the role of blockchain in consumer protection.

In November, Erika Nijenhuis, senior adviser at the U.S. Treasury Department's Office of Tax Policy, said that the Internal Revenue Service (IRS) is evaluating different approaches to cryptocurrency tax regulations. Nijenhuis also focused on the burdens that each approach imposes on cryptocurrency parties, such as exchanges, and a range of benefits that each approach brings, such as enhanced compliance. Earlier this year, the IRS stated in the draft guidance for Form 1040, "U.S. Individual Income Tax Return," for 2020 that any transaction involving virtual currency in 2020 will require a "yes" check in the crypto-related questions, including virtual currency transactions, exchanges, and withdrawals.

In the same month, the U.S. Securities and Exchange Commission (SEC) issued an amendment to improve the securities issuance exemption framework, including modifying the rules for early-stage startups to raise capital, raising the upper limit of securities issuance that companies can conduct under the Reg A+ rules from $50 million to $75 million, raising the upper limit of funds raised under crowdfunding regulations from $1.07 million to $5 million, and raising the upper limit of issuance under the Reg D rules from $5 million to $10 million. In addition, the SEC has also relaxed some restrictions on document filing and qualified investor investment limits. The amendment will be published in the Federal Register for 60 days before it officially takes effect. Analysts believe that this move may be beneficial to security token issuance (STO).

On December 18, the U.S. Department of Justice’s Office of Inspector General (OIG) said that the Federal Bureau of Investigation (FBI) needs to implement a cryptocurrency strategy.

On December 19, the U.S. Financial Crimes Enforcement Network (FinCEN) issued a proposed rule that would require banks or money service businesses to record or report transactions of unhosted and other related wallets. Once the regulation takes effect, cryptocurrency self-hosted wallets will be subject to higher anti-money laundering standards, which means anonymous transactions may become a thing of the past. Under the rule, KYC requirements for withdrawals exceeding $3,000 are increased. For transactions exceeding $10,000, companies must report to FinCEN. This will require banks and MSBs to file information related to transactions with customers and their counterparties, including names and physical addresses, to verify the identities of both parties.

On March 9, U.S. Congressman Paul Gosar submitted the Crypto-Currency Act of 2020, which aims to clarify the appropriate regulatory agencies to regulate a range of crypto assets.

Will Stechschulte, assistant to Paul Gosar, said the bill should not only provide clarity but also legitimacy for crypto assets in the United States. Paul Gosar proposed to divide digital assets into three categories: crypto commodities, cryptocurrencies and crypto securities. These three categories are regulated by the U.S. Commodity Futures Trading Commission (CFTC), the Financial Crimes Enforcement Network (FinCEN) and the U.S. Securities and Exchange Commission (SEC).

In addition, the IRS may conduct stricter scrutiny on crypto exchanges and is currently working with the Treasury Department to develop clear crypto tax guidelines. With the rise of the DeFi wave, the Technical Advisory Committee of the Commodity Futures Trading Commission (CFTC) is also paying attention to DeFi regulatory issues.

This summer, bank regulators the OCC and the Office of the Comptroller of the Currency announced that banks will also be able to help clients custody electronic currency assets in the future.

U.K.

On December 24 this year, after more than nine months, the EU and the UK finally announced a Brexit trade agreement. Some analysts believe that amid the uncertainty caused by the coronavirus crisis and the possibility that Brexit could further weaken the pound and increase pressure on the Bank of England, virtual currencies could become a potentially viable future asset option or alternative for British residents. According to a report by the crypto exchange Kraken, the current amount of Bitcoin exchanged for pounds is 38 times that of the same period last year.

What policies will the UK have after Brexit?

In October, the UK Financial Conduct Authority (FCA) announced a formal ban on the sale of cryptocurrency derivatives and exchange-traded notes to retail users. The ban was first proposed a year ago and will take effect on January 6, 2021. The FCA said that these products are not suitable for retail consumers for a number of reasons, including the extreme volatility of cryptocurrencies. The ban applies to all companies doing business in or within the UK. Other reasons for the ban include hacking incidents, lack of understanding and the lack of reliable valuation basis for cryptocurrencies.

In November, the UK Treasury issued a statement saying that it was drafting a draft to regulate private stablecoins and was also studying the possibility of central bank digital currency (CBDC) as a substitute for cash. Although the details are unclear, the statement said that the draft will require companies operating stablecoins to comply with the same minimum standards as other payment entities.

European Union

The EU's 5th Anti-Money Laundering Directive (5AMLD) came into effect on January 10, local time in Europe. Cryptocurrency projects in EU countries must implement corresponding KYC procedures to achieve anti-money laundering (AML) and combating the financing of terrorism (CFT). This decree has affected many cryptocurrency projects.

It is clear that more and more information indicates that the EU is strengthening its international position in the field of digital finance and becoming a global standard setter.

This fall, the EU Commission will complete its work on digital finance and will provide a clear definition of cryptocurrencies in European law.

In September, according to the website of the EU Digital Innovation and Blockchain Team Committee, the European Commission will work with the European Blockchain Partner Alliance (EBP) composed of more than 30 countries to test blockchain and digital asset use cases in the European Blockchain Service Infrastructure (EBSI), and will launch a sandbox for blockchain supervision in 2022. EBSI is a joint program launched by the European Commission and the European Blockchain Partner Alliance (EBP) to use blockchain technology to provide cross-border digital public services throughout the EU. At the same time, the Commission specifically mentioned the development of a regulatory framework that will support asset digitization through tokenization and smart contracts.

On September 24, the European Commission officially adopted a new digital financial package, including digital finance and retail payment strategies, as well as legislative proposals on crypto assets. The European Commission said that the new package is the first time that the agency has proposed new legislation on crypto assets. As part of the new legislative proposal, the EC pays special attention to stablecoins, a cryptocurrency that links its value to an external reference (such as the US dollar). Specifically, the proposal aims to introduce stricter requirements for stablecoin issuers in terms of capital, investor rights and supervision. Among them, if the stable issuance exceeds 5 million euros (5.8 million US dollars), the EC requires the stable issuer to complete the authorization of the national competent authority. In addition, the agency also hopes that crypto asset issuers will publish a white paper and impose mandatory requirements on information disclosure. Within 12 months, small and medium-sized enterprises that provide crypto assets totaling no more than 1 million euros (1.1 million US dollars) will be exempt from publishing the white paper.

In addition, in July this year, the European Union announced the minimum technical requirements for nodes that can participate in its blockchain service test network, and participating nodes will test the EU's blockchain service infrastructure code base. According to the technical specifications released last week by the European Commission's digital connection plan CEF Digital, nodes in the European Blockchain Service Network (ESBI) version 1.0 must have at least three computer hosts, namely the host for core services and two protocol hosts for BESU and Hyperledger Fabric blockchains.

Cryptocurrency policies in some EU countries

·Switzerland

The Swiss canton of Zug will begin allowing citizens to pay taxes in Bitcoin and Ethereum. The canton is home to some hedge funds, cryptocurrency companies and traders. The Swiss government said in a statement that companies and individuals in Zug can settle taxes in cryptocurrency, with a maximum amount of 100,000 Swiss francs (about $109,700).

·Estonia

Estonia is turning its attention from banks to cryptocurrency companies in its fight against money laundering. Estonia, a digital pioneer and member of the European Union and the eurozone, has been stepping up efforts to prevent financial crime after being embroiled in a multibillion-dollar money laundering scandal, with its latest target being companies that trade and help customers hold virtual currencies such as Bitcoin.

·Germany

Germany’s financial regulator, BaFin, has asked one of the country’s largest Bitcoin ATM providers, KKT UG, to cease operations. According to TrustNodes, BaFin explained that Bitcoin ATM providers must obtain a proprietary trading license under German banking regulations.

·France

The French Ministry of Finance is preparing to strengthen KYC rules for crypto companies and will also regulate all peer-to-peer crypto transactions. The French Ministry of Finance issued a decree that will make full KYC mandatory for all crypto transactions, including crypto-to-crypto transactions. This means that all crypto exchanges and other companies must verify their customers, regardless of the size of the transaction.

Furthermore, full KYC measures would also eliminate the benefits of “casual” crypto trading or one-off transactions worth €1,000 or less, which do not require KYC.

Another major rule change proposed is mandatory registration for cryptocurrency exchanges. In France, the current mandatory registration rules only apply to crypto-fiat exchanges and crypto custodians. Sources said the main reason France is proposing stricter measures is the recent terrorist attacks in France. Two weeks before the September attacks, French police arrested 29 people suspected of using cryptocurrencies to fund Syrian extremists.

Russia

Russia's Ministry of Finance has proposed new amendments to the country's upcoming law on crypto assets that could reduce requirements for cryptocurrency taxpayers. According to the draft bill, individuals must declare their holdings if their annual trading volume exceeds 600,000 Russian rubles (about $7,800). In previous proposals, the Ministry of Finance had required disclosure when trading volume exceeded 100,000 rubles (about $1,300) in a year. The law is scheduled to be passed in January next year, and the Ministry of Finance hopes that asset disclosures for the next tax year will be no later than April 30, 2022. The bill says that the reported value of cryptocurrencies will be calculated by the state tax agency based on the price at the time of the transaction.

Starting next year, Russian public officials will have to report their cryptocurrency holdings. At the end of July this year, Russian President Vladimir Putin signed a bill on digital financial assets that regulates digital assets and cryptocurrencies. Although it gives cryptocurrencies legal status as assets and will legalize digital asset transactions, it will prohibit the country from using cryptocurrencies as a means of payment. According to reports, although the bill defines cryptocurrency as a type of property for tax purposes, it cannot be used for services such as payment for goods in Russia. The bill also contains instructions that Russian companies can issue digital securities through blockchain, provided that they must obtain approval from the Russian Central Bank. The law is scheduled to take effect in January 2021.

In September, the Russian Ministry of Finance raised reporting standards for cryptocurrencies in an upcoming legislative amendment to combat tax evasion and other financial misconduct. The ministry proposed raising reporting standards for Russia's digital asset law, which was signed by Russian President Vladimir Putin in July and will take effect in January 2021, in an attempt to reduce the impact of cryptocurrencies in money laundering, tax evasion, and illegal activities. In addition, the proposal also stipulates that crypto users will be required to report transaction history, digital wallet addresses, and balances if the wallet accumulates more than 100,000 Russian rubles (about $1,300). Unreported wallets that process more than 1 million rubles (about $13,000) in a year may face penalties of labor reform and up to three years in prison.

The Russian Ministry of Finance has drafted a new bill that, if passed, will have a significant impact on the country's cryptocurrency miners. The draft states that third parties are allowed to use digital currencies, create software and hardware to issue digital currencies, and trade, but it is illegal to accept digital assets as payment for such work. The draft may make it illegal to accept digital assets as payment for mining and other activities, and some miners and mining farms that accept digital assets as payment will also be considered illegal operations.

Iran

Iran is becoming a country that uses cryptocurrency for value exchange at the national level.

Iran’s cabinet has amended legislation to reintegrate cryptocurrencies into the import financing mechanism of the Central Bank of Iran (CBI). “Miners should provide native cryptocurrencies directly within the scope of the authorization of the CBI introduction channel,” the central bank and the Ministry of Energy said. The legal limit on the amount of cryptocurrency per miner will be determined based on the level of subsidized energy used for mining and instructions issued by the Ministry of Energy. Specifically, the Ministry of Energy and the Central Bank of Iran (CBI) issued the decree requiring legally registered cryptocurrency miners in the country to sell mined tokens to the Central Bank of Iran (CBI), making it the first country in the world to use cryptocurrency for value exchange at the government level. Under the control of US sanctions, Iran cannot use US dollars for international trade, and its foreign exchange reserves have decreased by more than 33% in two years.

Japan

The Japanese crypto asset industry is regulated by the Financial Services Agency of Japan. The relevant laws include the Payment Services Act and the Financial Instruments and Exchange Act. The relevant amendments officially came into effect on May 1, 2020. Japanese cryptocurrency exchanges are required to hold a crypto asset service provider license to provide crypto asset-related services to Japanese customers and investors.

The legislative amendments that came into effect this year have the following highlights:

- Use "crypto-asset" as a term to refer to digital assets;

- Crypto asset service providers must store platform cash flow and customer assets separately, and need to custody customer assets through third-party operators;

- Even if crypto asset custodians do not provide trading services, they must register their company information with the Financial Services Agency;

- Spreading false rumors about a cryptocurrency may constitute a crime and attract penalties.

The above new regulations of the Financial Services Agency of Japan have obviously tightened the supervision of the crypto asset industry, aiming to strengthen the protection of Japanese investors.

South Korea

South Korea has been at the forefront of cryptocurrency policy over the past three years.

The Planning and Finance Committee of the National Assembly of South Korea passed amendments to tax laws including the Income Tax Act and the Personal Consumption Tax Act, among which the taxation date for virtual currencies was postponed from October 2021 to January 2022. In addition, the specific content of the tax law related to virtual currencies remains consistent with the previous draft, that is, a 20% tax is levied on investment income of cryptocurrencies exceeding 2.5 million won per year. Chain News previously reported that in July this year, the draft of the proposed 2020 tax law amendment issued by South Korea stated that the South Korean government will include income obtained from virtual assets such as virtual currencies in other income, and will impose a 20% capital gains tax on digital currency income exceeding 2.5 million won per year starting in October 2021. Those who are required to pay virtual asset capital gains tax need to declare in May each year.

The Financial Intelligence Analysis Unit (FIU) under the Financial Services Commission of South Korea will publish the implementation regulations of the amendment to the "Law on the Reporting and Use of Specific Financial Transaction Information (Special Financial Law)" to be implemented in March next year. The publicity period will last for 40 days from November 3 to December 14. It is said that the amendment will make it impossible for virtual currency operators to handle virtual assets with money laundering risks such as anonymous coins (Dark Coin), and will not be able to handle transactions related to prepaid cards, mobile gift certificates and electronic bonds. The revised law will officially take effect on March 25 next year. In addition, in March this year, the plenary session of the South Korean National Assembly passed the amendment to the "Law on the Reporting and Use of Specific Financial Transaction Information (Special Financial Law)", which will be officially implemented on March 25, 2021. The amendment regards domestic cryptocurrency exchanges in South Korea as "financial companies" and includes regulations on anti-money laundering and cryptocurrency financing. Relevant companies must report to the financial sector within six months from the date of implementation (until September 25, 2021).

China

Mainland

Mainland China focuses more on blockchain.

The National Blockchain Vulnerability Database and industry security companies jointly issued the "Blockchain Vulnerability Grading Rules". The "Rules" are divided into "Public Chain System Vulnerability Grading Rules", "Alliance Chain System Vulnerability Grading Rules", "Smart Contract Vulnerability Grading Rules", and "Peripheral System Vulnerability Grading Rules". Based on the analysis of "harm degree" and "difficulty of exploitation", the vulnerabilities are divided into three threat levels: high, medium, and low. In addition, very detailed reference items are listed in the description of each hazard and difficulty, which basically covers most of the vulnerabilities that may be encountered in the blockchain field, and can help users quickly locate and analyze vulnerabilities. At the same time, relying on CVSS2.0, we strive to achieve interoperability with vulnerability rules in traditional basic fields, and connect the recognition and definition of vulnerabilities in the emerging blockchain field and traditional fields from the perspective of large network security.

From June 22 to July 3, 2020, the 16th Study Group (SG16) of the International Telecommunication Union Telecommunication Standardization Sector (ITU-T) was held online. At the meeting, the international standard "Financial Distributed Ledger Technology Application Guideline" was successfully established in ITU-T SG16, which was proposed by the Digital Currency Research Institute of the People's Bank of China (hereinafter referred to as "Digital Currency Research Institute") and jointly initiated with the China Academy of Information and Communications Technology, Huawei and other units. This standard is a framework standard. my country can use it to plan and layout the international standard system for financial blockchain, add sub-standards such as reference architecture, risk control, security and privacy protection, and financial blockchain business specifications in various fields, and promote the standardization of various important aspects of financial blockchain in ITU-T through the "one-to-many" approach, promote the healthy development of financial blockchain technology and related industries, and make more contributions to the setting of international rules.

The central bank released the "China Financial Stability Report (2020)". In the special topic of "Global Fintech Development and Regulatory Progress", the report interprets financial technologies such as central bank digital currency and private sector stablecoin. The report also stated that financial management departments will do a good job in overall planning and coordination, strengthen the top-level design and overall layout of supervision, and accelerate the improvement of the financial technology regulatory framework that conforms to my country's national conditions. First, based on innovative regulatory tools, on the basis of summarizing the experience of pilot projects on financial technology innovation supervision, improve the risk monitoring system, publish white papers in a timely manner, and launch financial technology innovation regulatory tools that conform to my country's national conditions and are in line with international standards as soon as possible. Second, with regulatory rules as the core, timely issue targeted regulatory rules to ensure that financial technology businesses have rules to follow in terms of business compliance, technical security, risk prevention and control, and solve problems such as regulatory gaps and regulatory arbitrage caused by lagging rules. Third, using digitalization as a means, build a digital regulatory reporting platform, use artificial intelligence technology to formalize, digitize and proceduralize regulatory rules, accelerate the construction of digital regulatory capabilities, and enhance regulatory penetration and professionalism.

The China Banking and Insurance Regulatory Commission has drafted the "Internet Insurance Business Supervision Measures (Draft for Comments)". The "Measures" point out that Internet insurance is not only a sales channel, but also a business model and service form. It encourages the integration of insurance with new technologies such as the Internet, big data, and blockchain, and supports Internet insurance to serve the real economy and social livelihood at a higher level.

Hong Kong, China

The Hong Kong SAR Government plans to establish a robust regulatory framework to allow high-quality virtual asset traders to settle in Hong Kong through licensing and supervision of virtual asset trading platforms by the Securities and Futures Commission.

On November 3, the Financial Services and the Treasury Bureau (Financial Services and the Treasury Bureau www.fstb.gov.hk) of the Hong Kong Special Administrative Region Government issued a consultation document to collect public opinions on the amendment of Chapter 615 of the Laws of Hong Kong, the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. It is proposed to establish a licensing system for virtual asset service providers, stipulating that any person who intends to engage in regulated business of virtual asset trading platforms in Hong Kong must apply for a license from the Securities and Futures Commission and meet the appropriate person criteria, and the licensee must comply with the anti-money laundering and terrorist financing provisions set out in Schedule 2 of the Anti-Money Laundering Ordinance and other regulatory requirements aimed at protecting investors.

India

In March this year, the Indian Supreme Court revoked the order of the Reserve Bank of India (RBI), the central bank of India, which prohibited financial institutions from providing banking services to virtual currency companies, thereby legalizing Indian cryptocurrency companies. This move promoted the booming development of exchanges in India. However, as the Indian cryptocurrency ban was abolished by the court, many cryptocurrency exchanges have been launched one after another.

However, there are reports that India may introduce a law to ban cryptocurrency trading. People familiar with the matter said that the bill to ban cryptocurrency trading will be discussed in the cabinet. Two people familiar with the matter said that the Indian government encourages blockchain technology but is not keen on market transactions.

Southeast Asia

·Thailand

The Securities and Exchange Commission (SEC) of Thailand has revised its net capital rules to strengthen liquidity management for securities firms and derivatives brokers, support the surge in trading on the Stock Exchange of Thailand and adapt to digital asset trading. The revised NC rules are expected to help securities firms that plan to enter new businesses such as cryptocurrency trading to release liquidity. Some securities firms have consulted the SEC with the intention of launching cryptocurrency exchanges. In addition, the SEC will allow securities firms operating digital businesses to hold various forms of digital assets, such as cryptocurrencies and other digital assets, and calculate NC funds based on the value of these digital assets. However, it needs to be increased or decreased based on the quality of the assets. According to sources, the maximum amount that digital assets can be calculated is 50% of the asset value. For securities firms operating digital asset businesses and storing digital assets for customers, the NC rules require the company to keep more than 1% of funds in cold wallets (offline systems) and more than 5% of customer assets stored in hot wallets or online systems. If the securities firm also operates digital asset businesses but is not responsible for retaining customers' digital assets, shareholders' equity is required to exceed 500,000 baht.

·Malaysia

Regulatory guidelines issued by the Securities Commission of Malaysia (SC) for operating various digital currency platforms came into effect on October 28. The Malaysian regulator first issued these guidelines in January, proposing a number of rules for IEOs and digital asset custodians (DACs). It makes it mandatory that digital tokens can only be offered through IEOs in the country. IEO platform operators will be required to conduct assessments and necessary due diligence on issuers, review the disclosures in issuers’ proposals and white papers, and assess the issuers’ ability to comply with the requirements of the Guidelines and the SC’s Guidelines on the Prevention of Money Laundering and Terrorism Financing. The guidelines also bring a number of other restrictions on initial coin offerings (ICOs). The maximum limit for ICOs is RM100 million (approximately US$24.5 million). In addition, all IEO platforms operating in Malaysia need to register with the regulator. Any person who operates a digital exchange or offers or distributes any digital asset without authorization from the SC commits an offence and, upon conviction, is liable to a fine not exceeding RM10 million or imprisonment for a term not exceeding ten years or both.

Conclusion: In 4 days, the magical 2020 will become a thing of the past. We look forward to a better 2021 and a better cryptocurrency world.