Crypto Regulations: How Different Countries Are Shaping the Market

United States cryptocurrency regulations

The U.S. has taken a hot-and-cold approach to regulating crypto. Some in Congress would like to see a comprehensive new framework put in place that would allow the industry to thrive, while financial market regulators are cracking down on a space that’s awash with concerns over money laundering, scams and cybercrime.

• Securities and Exchange Commission (SEC): The SEC regulates cryptocurrencies deemed as securities and enforces compliance with securities laws. The SEC’s recent actions have focused on initial coin offerings (ICOs) and the classification of digital tokens.
• Commodity Futures Trading Commission (CFTC): The CFTC oversees cryptocurrency futures and derivatives markets, treating cryptocurrencies like Bitcoin and Ethereum as commodities.
• Financial Crimes Enforcement Network (FinCEN): FinCEN enforces anti-money laundering (AML) regulations and requires crypto exchanges to implement Know Your Customer (KYC) procedures.
• State Regulations: States like New York have their own regulations, such as the BitLicense, which imposes specific requirements on crypto businesses operating in the state.

EU’s cryptocurrency regulation

The European Union introduced the world’s first comprehensive cryptocurrency regulations in May 2023, known as the Markets in Crytpo-Assets Regulation (MiCA).The European Security and Markets Authority is currently in a consultation process with the public on a number of measures.

• Markets in Crypto-Assets Regulation (MiCA): MiCA aims to provide a consistent regulatory framework across EU member states, covering various aspects of crypto-assets, including issuers, service providers, and stablecoins.
• Anti-Money Laundering Directive (AMLD): AMLD includes provisions for cryptocurrency exchanges and wallet providers, requiring them to comply with AML and KYC regulations.
• European Central Bank (ECB): The ECB is exploring the possibility of introducing a digital euro, a central bank digital currency (CBDC) that would coexist with traditional fiat currencies.

Canada’s cryptocurrency regulation

Cryptocurrencies are not legal tender in Canada but can be used to buy goods and services online or in stores that accept them. Canada has been fairly proactive in its treatment of cryptocurrencies, primarily regulating them under provincial securities laws.

Canada brought entities dealing in virtual currencies under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) as early as 2014, while in 2017 the British Columbia Securities Commission registered the first cryptocurrency-only investment fund.After an amendment to the PCMLTFA in 2019, exchanges in Canada are essentially regulated in the same way as money services businesses and are subject to the same due diligence and reporting obligations.

In 2021, the Canadian Securities Administrators (CSA) published guidance for crypto issuers that own or hold crypto assets. The guidance set out regulatory expectations for disclosures that crypto issuers must provide about how they protect their assets against loss and theft. Similarly, further amendments to the PCMLTFA in 2021 introduced the requirement for cryptocurrency exchanges to register with the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC).  

We suspect both the Canadian government and crypto exchanges will need time to evaluate how the most recent changes have affected the crypto landscape before considering additional legislation.

Asian digital currency laws

Asia is a leader on crypto use around the world but regulations vary significantly among countries in the region.

China

China has taken a stringent stance on cryptocurrencies, reflecting its concerns over financial stability and capital outflows. China is one of the strictest countries when it comes to cryptocurrency with bans on exchanges, trading and crypto mining.

• Cryptocurrency Ban: China has implemented a series of bans on cryptocurrency trading and ICOs, citing concerns about financial risk and illegal activities.
• Central Bank Digital Currency (CBDC): The People’s Bank of China (PBoC) is actively developing and piloting the digital yuan, which aims to provide a state-controlled alternative to cryptocurrencies and enhance monetary policy.

Japan

Japan is known for its progressive approach to cryptocurrency regulation, focusing on creating a secure and regulated environment for digital asset trading. We can say that Japan is open to crypto use, recognizing it as a type of money and as legal property. As such, crypto and yen transactions are both managed by the country’s Financial Services Agency, and citizens of the country are free to own or invest in crypto. 

• Financial Services Agency (FSA): The FSA regulates cryptocurrency exchanges and requires them to register, comply with AML and KYC regulations, and implement security measures.
• Law on Settlement of Funds: Japan’s legal framework recognizes Bitcoin and other cryptocurrencies as legal tender, providing clarity on their use in transactions and payments.

South Korea

South Korea is progressing with regulation for crypto and other virtual assets after the Virtual Asset Users Protection Act was passed in 2023. The regulation creates stronger protections for users by adding requirements around record keeping and transparency.

South Korea has taken significant steps to regulate cryptocurrencies, addressing concerns over market volatility and investor protection.

• Anti-Money Laundering Measures: South Korea requires crypto exchanges to implement robust KYC procedures and report suspicious activities.
• Regulatory Clarity: The South Korean government has provided regulatory clarity on the legal status of cryptocurrencies and ICOs, promoting a balanced approach to innovation and risk management.