Regulation
Compliance Considerations for the Cryptocurrency Industry
The federal government’s high-profile crackdown on crypto companies requires all cryptocurrency market participants to redouble their compliance efforts, both to satisfy regulators and to confirm the trust of customers and counterparties
Crypto compliance right now requires sophistication. Despite the absence of industry-specific regulatory or regulatory regimes, several U.S. regulatory and law enforcement agencies have aggressively asserted jurisdiction over the digital asset universe. To date, the U.S. Department of Justice and regulators, including the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and others at the federal and state levels, have pursued enforcement actions against exchanges of cryptocurrencies, cryptocurrency trading, coin offerings, non-fungible tokens, stablecoins and more, usually with conflicting and competing demands for information and guidance. These efforts often lacked coordination and were led by divergent opinions on the applicable legal theories even when faced with a set of common facts.
The absence of regulatory guidance combined with hyperactivity of law enforcement efforts create treacherous waters for even the most diligent of compliance officers. Recent comments by SEC Enforcement Division Director Gurbir Grewal on compliance expectations, particularly regarding the individual responsibility of compliance personnel, should raise concern among cryptocurrency market participants. Grewal emphasized that the SEC will take action against compliance personnel “where there is a total failure by compliance personnel to carry out their compliance responsibilities.” This test depends critically on agreement or consensus regarding compliance responsibilities. In the absence of federal legislation or a substantive regulatory framework, unlike the traditional financial services industry, it raises the possibility that even good faith efforts in the cryptocurrency space will be deemed insufficient by regulators and perhaps characterized as “wholesale failures” meriting sanctions, according to Director Grewal’s public statements.
Crypto risk areas
Crypto compliance officers don’t have the luxury of waiting for clearer regulations to be promulgated. Instead, they must ensure, even in this uncertainty, that their protocols satisfy a range of regulators who have murky and often divergent expectations. Some key areas of focus, described below, are essential to reduce risk and inspire confidence in a program’s effectiveness.
Understanding blockchain technology
Companies involved in cryptocurrency and their executives need to have people working on their compliance team who fundamentally understand blockchain technology, the foundation of cryptocurrency-based business. Compliance teams must be able to educate employees on compliance expectations and educate regulators about their crypto products and operations. Communicating effectively with both constituencies will ensure a highly functioning and defensible compliance regime.
Anti-money laundering procedures
A key area for your compliance strategy to focus on is implementing a satisfactory and robust anti-money laundering (AML) program. The decentralized and pseudonymous nature of cryptocurrencies is often viewed with suspicion by regulators as a channel to hide illicit activity. Indeed, anti-money laundering experts point out that failure to comply with anti-money laundering requirements is often an integral part of the process. burdens that regulatory agencies carry against companies. Without adequate safeguards against money laundering and the risk of other financial crimes, crypto companies are vulnerable to regulatory scrutiny and exploitation by malicious actors.
Cryptocurrency trading firms must enhance traditional anti-money laundering procedures to include cryptocurrency-specific monitoring and analysis into their compliance regimes, including the use of blockchain intelligence tools to identify risky and/or cryptocurrency-associated crypto wallet addresses. terrorism. Additionally, companies should be aware that they are being assessed under the Bank Secrecy Act (BSA). For example, in October 2022, Bittrex was considered a financial services company, and ultimately is fined more than $24 million by the Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN) – both agencies within the U.S. Department of the Treasury – for failure to comply with BSA, anti-money laundering laws and other sanctions. Key to the sanctions was Bittrex’s access to customer IP and physical address information collected from onboarding new customers. The company knew that numerous customers were located in sanctioned jurisdictions, but did not filter customer information for associations with those jurisdictions.
Violations of the BSA by crypto companies could also have criminal consequences. In May 2022, the former CEO of BitMEX, one of the oldest and largest convertible virtual currency derivatives markets, was sentenced in the Southern District of New York to six months of house arrest and a $10 million fine for violating the BSA by failing to establish, implemented and maintained an anti-monetary money laundering program, including a program to verify the identity of BitMEX customers via a properly administered Know Your Customer (KYC) program. The company also settled charges with the CFTC and FinCEN in 2021, paying $100 million for BSA and AML violations.
Conservation policies
Retention policies are a relatively simple proactive step compliance officers can take to build goodwill with regulators. There are no explicit regulatory retention obligations for crypto companies, in stark contrast to the explicit obligations governing the traditional financial space. Nonetheless, regulators believe that loyalty policies are an indicator of a company’s compliance culture. Just to give an example, in the recent judicial proceedings and conviction of FTX founder Sam Bankman Fried, prosecutors pointed to FTX’s lack of a retention policy as evidence of wrongdoing. Such negative impressions are avoidable. Cryptocurrency trading companies should consider creating systems that, as appropriate, can record:
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- business data, including profit and loss data;
- employees who trade assets or operate automated trading strategies; AND
- the quantity and type of assets exchanged.
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Additionally, companies involved in the crypto industry should consider retaining all communications related to company accounts for a few years, including not only standard communication methods such as emails, instant messaging systems, and common less traditional modes of communication in the crypto space.
Third-party due diligence
Companies involved in the crypto industry should be rigorous in implementing risk-based approaches when interacting with third-party providers. Regulators have been clear in the mainstream financial world that companies are responsible not only for their own compliance obligations, but also those of the third-party providers they rely on. In fact, the Interagency guidance on third-party relationships: risk management from the US Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency, advised that: “[t]The scope and degree of due diligence should be commensurate with the level of risk and complexity of the relationship with third parties. More comprehensive due diligence is particularly important when a third party supports high-risk activities, including critical activities.”
This regulatory focus will be amplified in the crypto space. The government views the cryptocurrency industry as a fundamentally high-risk industry, often based in part on a poor understanding of the crypto ecosystem and its newness. This means that third party diligence requirements are very likely to be an expected area of regulatory scrutiny. Marketing and development efforts that involve third parties, often leveraging less disciplined mediums such as social media, podcasts, and collaborative workshops, create space for misunderstandings and potential problems. Accordingly, as part of a third-party risk assessment program, crypto companies should conduct due diligence on third parties before engaging them.
Audits
Effective and sustainable compliance programs can use internal and external audits to overcome any issues and demonstrate the effectiveness of the program. When performed on a regular basis, it verifies pressure testing compliance programs and provides regulators comfort about a company’s compliance culture. Given the challenges many regulators face in understanding the technologies in operation and identifying a legal theory of culpability, some regulators have pointed to the weak compliance culture with crypto companies as a means to advance investigations.
Data privacy and security issues
Operating in a digital environment, the risk of data leaks, cyber attacks, phishing schemes and malicious actors remains ever-present; and since cryptocurrency is a booming new industry, scammers have been targeting it heavily.
Because cryptocurrencies use blockchain technology for verification and do not pass through financial institutions, it is also more difficult to recover the proceeds of the theft and its impact. Compliance officers must create tailored provisions that safeguard internal company data, partner and consumer data, and company and customer assets.
Conclusion
The crypto enforcement landscape continues to evolve rapidly, but with no sign of increased statutory or regulatory guidance in the immediate future. In December, the The SEC denied a petition from Coinbase looking for new rules aimed specifically at the digital assets sector. The SEC said it will propose neither new rules nor long-sought clarifications on its expectations because the SEC fundamentally maintains that current securities regulations provide crypto companies with sufficient notice of their obligations. This is a premise that few, if any, crypto industry professionals agree with.
There is no indication that law enforcement efforts will slow: if anything, an increased scale of law enforcement is likely, if not certain. Therefore, it is up to compliance departments and their officials to be proactive in creating the best compliance programs to continue to protect not only the company and its customers, but also to insulate themselves from enforcement investigations and potential liability.
Raja Chatterjee contributed to this article. He is a former prosecutor and served as in-house counsel with responsibility for legal, risk and compliance functions.
Slovenia, a small but highly developed European country with a population of 2.1 million, boasts a rich industrial history that has contributed significantly to its robust economy. As the most economically developed Slavic nation, Slovenia has grown steadily since adopting the euro in 2007. Its openness to innovation has been a key factor in its success in the industrial sector, making it a favorite destination for cryptocurrency enthusiasts. Many believe that Slovenia is poised to become a powerful fintech hub in Europe. But does its current cryptocurrency regulatory framework support such aspirations?
Let’s explore Slovenia’s cryptocurrency regulations and see if they can push the country to the forefront of the cryptocurrency scene. My expectations are positive. What are yours? Before we answer, let’s dig deeper.
1. Cryptocurrency Regulation in Slovenia: An Overview
Slovenia is known for its pro-innovation stance, providing a supportive environment for emerging technologies such as blockchain and cryptocurrencies. Under the Payment Services and Systems Act, cryptocurrencies are classified as virtual assets rather than financial or monetary instruments.
Regulation of the cryptocurrency sector in Slovenia is decentralized. Different authorities manage different aspects of the ecosystem. For example, the Bank of Slovenia and the Securities Market Agency supervise cryptocurrency transactions to ensure compliance with financial laws, including anti-money laundering (AML) and counter-terrorist financing regulations. The Slovenian Act on the Prevention of Money Laundering and Terrorist Financing (ZPPDFT-2) incorporates the EU’s Fifth Anti-Money Laundering Directive (5MLD) and aligns with the latest FATF recommendations. All virtual currency service providers must register with the Office of the Republic of Slovenia.
2. Cryptocurrency regulation in Slovenia: what’s new?
This year, there have been several noteworthy developments in the cryptocurrency sector in Slovenia:
July 25, 2024: Slovenia has issued a €30 million on-chain sovereign digital bond, the first of its kind in the EU, with a yield of 3.65%, maturing on 25 November 2024.
May 14, 2024: NiceHash has announced the first Slovenian Bitcoin-focused conference, NiceHashX, scheduled for November 8-9 in Maribor.
3. Explanation of the legal framework for cryptocurrency taxation in Slovenia
Slovenia’s cryptocurrency tax framework provides clear guidelines for both individuals and businesses. According to the Slovenian Tax Administration, tax treatment depends on the status of the trader and the nature of the transaction.
- Individuals: Income earned from cryptocurrencies through employment or ongoing business activities is subject to personal income tax. However, capital gains from trading or market fluctuations are exempt from taxation.
- Society: Capital gains from cryptocurrency activities are subject to a corporate income tax of 19%. Value added tax (VAT) generally applies at a rate of 22%, although cryptocurrency transactions considered as means of payment are exempt from VAT. Companies are not allowed to limit payment methods to cryptocurrencies only. Tokens issued during ICOs must comply with standard accounting rules and the Corporate Tax Act.
4. Cryptocurrency Mining in Slovenia: What You Should Know
Cryptocurrency mining is not restricted in Slovenia, but the income from mining is considered business income and is therefore taxable. This includes rewards from validating transactions and any additional income from mining operations. Both natural persons and legal entities must comply with Slovenian tax regulations.
5. Timeline of the evolution of cryptocurrency regulations in Slovenia
Here is a timeline highlighting the evolution of cryptocurrency regulations in Slovenia:
- 2013:The Slovenian Tax Administration has issued guidelines according to which income from cryptocurrency transactions should be taxed.
- 2017:The Slovenian Tax Administration has provided more detailed guidelines on cryptocurrency taxation, based on factors such as the trader’s status and the type of transaction.
- 2023The EU has adopted the Markets in Cryptocurrencies Regulation (MiCA), which establishes a uniform regulatory framework for cryptocurrencies, their issuers and service providers across the EU.
Final note
Slovenia’s approach to the cryptocurrency industry is commendable, reflecting its optimistic view of the future of cryptocurrency. The country’s balanced regulatory framework supports cryptocurrency innovation while protecting user rights and preventing illegal activities. Recent developments demonstrate Slovenia’s commitment to continuously improving its regulatory environment. Slovenia’s cryptocurrency regulatory framework sets a positive example for other nations navigating the evolving cryptocurrency landscape.
Read also: Cryptocurrency Regulation in Hong Kong 2024
Photo by The Dhage of Shubham ON Disinfect
As the cryptocurrency landscape continues to evolve, the need for clear regulation has never been greater.
Vice President Kamala Harris is now leading the charge on digital asset regulation in the United States, presenting a unique opportunity for a clean slate. This fresh start can foster innovation and protect consumers. It can also pave the way for widespread adoption across industries, including real estate agencies, healthcare providers, and online gambling platforms like these online casinos in the uk. According to experts at SafestCasinoSites, these platforms have advantages such as bonus offers, a wide selection of games, and various payment methods. Ultimately, all this increased adoption could push the cryptocurrency market forward.
With that in mind, let’s take a look at the current state of cryptocurrency regulation in the United States, which is a complex and confusing landscape. Multiple agencies, including the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Financial Crimes Enforcement Network (FinCEN), have overlapping jurisdictions, creating a fragmented regulatory environment. This lack of clarity has hindered innovation, as companies are reluctant to invest in the United States, fearing regulatory repercussions. A cohesive and clear regulatory framework is urgently needed to unlock the full potential of cryptocurrencies in the United States.
While the US struggles to find its footing, other countries, such as Singapore and the UK, are actively embracing the cryptocurrency industry with clear and supportive regulatory frameworks. This has led to a brain drain, with companies opting to set up in more hospitable environments.
Vice President Kamala Harris has a unique opportunity to change this narrative and clean up the future. cryptocurrency regulation. By taking a comprehensive and inclusive approach, it can help create a framework that balances consumer protection with innovation and growth. The time has come for clear and effective regulation of cryptocurrencies in the United States.
Effective regulation of digital assets is essential to fostering a safe and innovative environment. Key principles guiding this regulation include clarity, innovation, global cooperation, consumer protection, and flexibility. Clear definitions and guidelines eliminate ambiguity, while encouraging experimentation and development to ensure progress. Collaboration with international partners establishes consistent standards, preventing regulatory arbitrage. Strong safeguards protect consumers from fraud and market abuse, and adaptability allows for evolution in response to emerging trends and technologies, striking a balance between innovation and protection.
The benefits of effective cryptocurrency regulation are many and far-reaching. By establishing clear guidelines, governments can attract investors and traditional users, spurring growth and adoption. This, in turn, can position countries like the United States as global leaders in financial technology and innovation. Strong protections will also increase consumer confidence in digital assets and related products, boosting economic activity.
A thriving cryptocurrency industry can significantly contribute to GDP and job creation, which has a positive impact on the overall economy. Furthermore, effective regulation has paved the way for the growth of many companies such as tech startups, online casinos, and pharmaceutical companies, proving that clear guidelines can unlock new opportunities without stifling innovation. This is a great example of how regulation can alleviate fears of regressive policies, even if Kamala Harris does not repeal the current progressive approach. By adopting effective regulation, governments can create fertile ground for the cryptocurrency industry to thrive, driving progress and prosperity.
- The UK Law Commission has developed a bill that will address a situation of legal uncertainty.
- The commission’s goal is to ensure that cryptocurrencies are legally treated as personal property.
UK law is not entirely clear whether cryptocurrencies can be considered personal property.
This is according to the UK Law Commission, which argues that while most investors assume that when they buy cryptocurrencies, they are “acquiring property rights in the same way as buying, say, a watch or a laptop.”
“As the law currently stands, this is not necessarily the case,” the respected legal body said in a new report on Tuesday.
The report was accompanied by a solution: a new bill to consolidate the legal status of digital assets as personal property.
This could be huge for the estimated 4.7 million Britons valued hold cryptocurrencies.
“This will allow the courts to determine a range of issues,” the report says.
If passed, the law would help clarify how cryptocurrencies are treated in cases of bankruptcy, estate planning or theft.
Flexible law
The commission is an independent body responsible for reviewing UK law. It began investigating whether English and Welsh property laws apply to digital assets in 2020.
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At the time, then-Chancellor of the Exchequer Rishi Sunak expressed ambitions to transform the UK into a cryptocurrency hub as Britons invested more.
In 2023, the commission decided that, in most cases, the legislation of England and Wales is sufficiently flexible to regulate cryptocurrencies.
This means that any asset, from Bitcoin to non-fungible tokens and some types of digital contracts, can be considered personal property, without Parliament having to write extensive new laws.
There was one small area of uncertainty, however: it was unclear whether cryptocurrencies fell within the two categories of personal property recognised under UK law.
These two categories are made up of tangible assets (cars, laptops, bags) and intangible assets (contracts, stocks, and debt).
The bill that will now go to Parliament to be converted into law aims to remedy this situation.
Without that clarification, courts may try to lump cryptocurrencies together with intangible assets, said Adam Sanitt, head of litigation, knowledge, innovation and corporate support EMEA at law firm Norton Rose Fulbright. DL News in March.
This is problematic because intangible assets are creations of the legal system, while cryptocurrencies are not.
“How the law treats digital assets, what rights you have over them, how you own them, how you transfer them to other people—that treatment is different, because digital assets don’t exist by virtue of the legal system, but independently of it,” Sanitt said.
The money in your bank account, for example, is a legal creation. The government could pass a law to cancel it.
However, if the UK passed a law banning Bitcoin, Bitcoin would not cease to exist.
Sanitt said: “That’s why digital assets are so important: neither the government nor the legal system can take them away from you.”
Contact the author at joanna@dlnews.com.
The cryptocurrency industry has performed remarkably well since its inception, but now faces a critical hurdle that requires careful consideration and regulatory expertise to overcome. Despite the industry’s rapid growth and rate of global adoption, the gap between the industry and global regulation is only widening as new innovations break through into the public domain.
Although efforts are being made on both sides, regulators’ lack of familiarity with cryptocurrencies and the industry’s lack of regulatory expertise are hindering innovation in the sector. To address this issue, traditional financial institutions (TradFi) such as MultiBank Group have started venturing into the cryptocurrency sector.
The regulatory gap
Over the past decade, the cryptocurrency industry has grown dramatically as tech entrepreneurs and forward-thinking thinkers have founded a plethora of crypto platforms and protocols to push the boundaries of the space. The problem faced by these newcomers, who are often unfamiliar with the hurdles posed by financial regulators, can quickly overwhelm and stall operations.
On the other hand, regulators more attuned to TradFi systems may be equally stifled by the complexities of decentralization and blockchain technology. The unfamiliarity experienced by both innovators and regulators creates a stark regulatory divide between both sides, leading to misunderstandings and potential conflicts.
To overcome this lack of communication, a bridge must be built to bridge the gap, ensuring future stability for the cryptocurrency industry and clearer legislation from regulators.
Efforts to bridge the gap between industry
The gap between the cryptocurrency industry and regulators is slowly narrowing as efforts to regulate cryptocurrencies and Web3 space activities are gaining momentum. Specific regulatory actions are taking place in many countries, aimed at providing greater oversight of cryptocurrency transactions, cryptocurrency exchanges, and initial coin offerings (ICOs).
Despite being a positive step in the right direction, these new regulations can differ significantly between jurisdictions around the world. This fragmentation results in a regulatory environment filled with obstacles, bottlenecks, and varying requirements and prohibitions. As cryptocurrency companies and TradFi institutions attempt to navigate the minefield, the regulatory maze becomes increasingly convoluted.
TradFi institutions like MultiBank Group are working to solve this problem, as one of the largest financial derivatives institutions in the world with over 12 licenses across all continents. Founded in 2005, the Group has an impeccable and trustworthy reputation globally, extensive expertise in financial regulation and has now ventured into the cryptocurrency space via MultiBank.io.
MultiBank.io: TradFi Excellence in the Crypto Space
Expanding into the cryptocurrency space via MultiBank.io has enabled MultiBank Group to provide regulatory clarity and trust to the digital asset industry. With a substantial daily trading volume of $12.1 billion, the timely decision to enter the cryptocurrency space has the potential to set regulatory precedents and standards for years to come.
By helping to develop sensible and well-considered regulations, MultiBank.io’s established reputation allows the company to communicate effectively and clearly with regulators. Unlike others in the industry without regulatory expertise, MultiBank.io facilitates the Group’s commitment to rigorous regulatory standards, the scope of oversight and establishes the necessary transparency.
The company’s approach ensures that regulatory licenses are pre-acquired, compliance is met globally without jurisdictional barriers, and transactions remain secure at all times. By helping to create robust regulations that are both clear and innovation-friendly, MultiBank Group looks forward to standardizing the entire cryptocurrency industry for other potential innovators.
One of the biggest challenges in establishing a clearly constructed bridge between regulators and the cryptocurrency industry is effective communication. By leveraging its institutional background TradFi and acting as an intermediary with regulators, MultiBank Group is able to translate the needs of the industry to those who shape it.
This quality of mediation is essential to ensure that regulation helps develop essential technological advances rather than hinders their establishment and growth. Through the lens of TradFi when looking at the complexity of the cryptocurrency industry, MultiBank Group is able to deconstruct unfamiliar crypto arguments for regulation and create a safer and more secure space.
Where TradFi and Crypto Meet
Regulations are crucial for traders, investors, and everyday users of crypto platforms and their safety when participating in crypto markets. While strict regulations are necessary for stable market integrity, innovation should still be considered, something MultiBank Group considers a priority.
Where TradFi and cryptocurrencies converge, the Group is there to provide a balanced approach to ensure promotion for both the cryptocurrency industry and regulators seeking to protect both retail and institutional investors. This balance is critical to maintaining a thriving space where cryptocurrency innovation can thrive without compromising the security of user funds or data.
As more TradFi institutions like MultiBank Group enter the cryptocurrency space with ever-expanding expertise in regulatory understanding, the future of the industry is increasingly encouraged. The financial freedoms of the cryptocurrency space coupled with regulatory oversight for financial security will be the guiding lights for the future success of the entire cryptocurrency industry.
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