Revision of Cryptocurrency Regulations

PUBLICATIONS / Articles / 2017 / Revision of Cryptocurrency Regulations

Cryptocurrency based fever has not come to an end and moreover led many legal advisers to take the trend seriously. Cryptocurrency or ICO (initial coin offering) is not regulated in some countries but instead regulated and already having clear instructions in individual states. There are also few financial regulations adopting the ‘case by case’ basis approach.  This article will review the current regulations available to all interested in this sphere.


Japan is the first and probably one with a well-developed regulatory framework for cryptocurrency and ICOs.  The FSA recognised Bitcoin as legal tender and authorised 11 companies to operate cryptocurrency exchanges, some of which will be handling a variety of coins including Bitcoin, Litecoin, and Ether.  On 27th October 2017, the FSA stated that ICOs might come under the Payment Services Act (“APSA”) or Financial Instruments and Exchange Act that will depend on the structure.

According to the FSA, some cryptocurrencies issued in an ICO will be deemed as “virtual currencies”.  Hence, the businesses providing exchange services of cryptocurrencies on a regular basis must be registered with applicable Local Finance Bureaus.


However, in case the ICO has the features of an investment, it can be categorised under the Financial Instruments and Exchange Act.


At the moment, although registering the ICO in Japan is comparatively transparent, many individuals are still cautious to officially seek for registration especially operating in other countries.


To register the cryptocurrency or ICO, the entity ‘Kabushiki Kaisha’ should be registered first. All the formalities including bank account set up and administration need to be in place before an application can be launched for the Virtual Currency Business in Japan.


In Hong Kong, the HKMA stated that bitcoin and other cryptocurrencies might be considered as commodities in 2016. However, on 5th September 2017, the Hong Kong SFC noted that cryptocurrency could be treated as security, which makes cryptocurrency as equity or interest rights in a company.  The similar case is in Singapore, where cryptocurrency has been stated as not regulated but based on the characteristics might be treated as security.


In Australia, ASIC issued guidance on the legal status of ICOs confirming cryptocurrency will be treaded based on the rights and structure offering, such as investment scheme or ownership of the company. In the UK, the ICO is also determined on ‘case by case’ basis, previously being warned by the FCA: “many ICOs will fall outside the regulated space”.  


In the USA, in 2015 the CFTC stated that it intended to treat cryptocurrencies as commodities.  Nonetheless, in July 2017 the SEC determined that the cryptocurrency constituted a security depending on the “facts and circumstances of each individual ICO”.  Although a cryptocurrency is determined to be a security, the ICO may be subject to registration with the SEC and disclosure obligations.


The additional draft legislation was from the Uniform Law Commission stating cryptocurrency as transactions in financial assets.  Such legislation, if enacted, will require the providers of cryptocurrency-related products and services to obtain a licence to operate in the states which adopt it, unless otherwise exempt.


In Germany, the picture is clear and the German Financial Services Authority, “BaFin” has confirmed that cryptocurrencies are financial instruments.  However, the act of simple cryptocurrencies use as cash, or money deposit does not require authorisation.  BaFin has also assured that a service provider or supplier may receive payment for goods/services in a cryptocurrency without carrying out banking business or financial services. Authorisation by BaFin is required in case the act has the character of platforms where the activities “are similar enough” to brokerage services.  BaFin provides guidance on factors which indicate that a digital currency exchange or another platform may be carrying out broking services.  If no principal broking services are carried out by the platform, they may instead operate a multilateral trading facility as platform, which requires being authorised.

There is no general requirement for the mining of cryptocurrencies authorisation.  If a mining pool offers shares in proceeds or provides services for the creation/maintenance of a market, authorisation might be required.


With regards to ESMA statement, initially warning the investors on the associated risks, it noted that cryptocurrencies may constitute financial instruments or securities, and companies will need to analyse the features of the cryptocurrency.


In the UAE, some experts argue that regulations may come in January 2018. However, the rules that may apply to cryptocurrency are from the DIFC making cryptocurrency a financial regulated activity.  Recently, Dubai has launched its blockchain-based cryptocurrency, and there are more signs for positive use of cryptocurrency, as it can be the future and the significant point to change the payment mode.  At the moment, the big players can start their cryptocurrencies only the DIFC is the appropriate authority. 


In addition to the well-known jurisdictions, there are few jurisdictions with a friendly approach to the new trend. These are mostly from developing jurisdictions. One of them is Kazakhstan, where cryptocurrency is currently unregulated, and the newly launched AIFC (Astana International Financial Centre) is working on the guidance for Fintech startups. Another example is Estonian market with an attempt to start national cryptocurrency.

​The latest development in cryptocurrency and ICO is in New Zealand. The regulator states that any cryptocurrency or ICO-derived token would be considered a security. 


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