How are countries regulating cryptocurrency exchanges?

A lot of market speculation is going on, in search of best crypto exchanges. The market currently is in a turbulent stage where the demand is growing exponentially on weekly basis. The exchanges are either not able to handle the user load or part of some Ponzi scheme. The government authorities across many nations are either not ready to regulate the digital assets/ currency or denying its acceptance at a national level.

South Korea

On the global front, countries such as South Korea are gradually moving towards regulating cryptocurrency exchanges mainly because of very high investor interest and future prospects of volume surges on these exchanges. The Korean Blockchain Industry Association (KBIA) announced self-regulatory measures for cryptocurrency exchanges on December 15. The South Korean government has also released emergency measures for cryptocurrency regulation on December 14. These measures stated,

a virtual currency exchange, which has more than 10 billion won in sales such as bithumb, Coinone, and Korbit, or more than 1 million visitors per day, is expected to receive the government’s ‘Information Security Management System (ISMS)’ certification next year.

The regulation also increases the standard and penalties applicable when a security breach occurs at an exchange. Around 14 bitcoin exchanges operating in South Korea have agreed to implement self-regulatory measures

The government of South Korea is preparing a bill, which would prohibit all transactions involving cryptocurrencies unless they take place through exchanges and meet the stated six requirements-

  1. Customer’s fund must be kept separately (70% of their crypto holdings are to be kept offline in cold storage)
  2. The exchanges must provide users with thorough explanation of investment risks
  3. Must confirm user’s real names
  4. Establish an adequate anti-money laundering system
  5. They must also have an asset protection system such as dispersion of cryptographic keys
  6. Increase in transparency by disclosing transaction details to public

As stated in the article, Money Today mentions:

The government defines virtual currency transactions such as bitcoins as Similar Receiving Behaviors and prohibits them altogether.

Under the current law, the accused of violating the Similar Receiving Behaviour Law can be penalized with imprisonment up to 5 years or a fine up to 50 million won. The upcoming bill will strengthen the penal clause and introduce “punishment of 10 years.

United States of America

In the United States, the SEC and Commodity & Futures Trading Commission have published many announcements in the last few months including strong statements by Jay Clayton, the SEC chairman.

Here is a list of activities complied on Marketwatch,

Regulator Current summary Key developments
Securities and Exchange Commission SEC has not approved any exchange-traded products (such as ETFs) holding cryptocurrencies or other assets related to cryptocurrencies for listing or trading. SEC has not registered any initial coin offerings. On July 25, 2017, the SEC issued an investor bulletin about initial coin offerings, saying they can be “fair and lawful investment opportunities” but can be used improperly. The SEC has issued three enforcement actions against ICO sponsors- one halt and exposure of two alleged frauds. SEC Chairman Clayton has also expressed concern about market participants who extend to customers credit in the U.S.
Commodity Futures Trading Commission The CFTC has designated bitcoin as a commodity and announced that fraud and manipulation involving bitcoin traded in interstate commerce and the regulation of commodity futures tied directly to bitcoin is under its authority. The CFTC allowed the CME and CBOE to launch bitcoin futures. CFTC also approved a platform for the trading and clearing of virtual currency derivatives for LedgerX, LLC, a swap execution facility and derivatives clearing organization.
Internal Revenue Service The IRS says bitcoin must be treated as property for tax purposes. That means a capital gain or loss should be recorded as if it were an exchange involving property. It should be treated like inventory if it is held for resale, and therefore an ordinary gain or loss recorded. If it is used as payment, it should be treated like currency, but must be converted, and its fair market value checked on an exchange.
States Several U.S. states plan to approve the acceptance or promotion of the use of bitcoin and blockchain technology, while some have already passed them into law according to Bitcoin magazine, including Arizona (recognition of smart contracts), Vermont (blockchain as evidence) and Delaware (pending initiative authorizing registration of shares of Delaware companies in blockchain form). The National Conference of Commissioners on Uniform State Laws voted in July to approve a model act providing for the regulation of digital currency businesses at the state level.
Department of Treasury In November the U.S. Treasury Department’s inspector general said it planned to review FinCEN’s cryptocurrency practices as they relate to money laundering and terrorism financing risks. FinCEN’s Guidance FIN-2013-G001 declared that “virtual currency does not have legal tender status in any jurisdiction.” Treasury Secretary Steven Mnuchin said in November he had established working-groups at treasury looking at bitcoin and that it is something they will be watching “very carefully.”

Europe

As per the recent news, Pierre Moscovici – European Union (EU) Commissioner for economic, financial affairs, taxation and customs has dismissed the suggestions to regulate Bitcoin. Pierre stated, “At this stage, we do not consider [bitcoin] as an alternative currency,” comparing the decentralized currency to Europe’s fiat currency, the Euro. Though, around mid-December European Central Bank told EU to regulate Bitcoin, as published in the Express.co.uk. However, few of the European countries have mentioned about acceptance of digital currencies.

 

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