The rise of cryptocurrency from a speculative instrument to a full-fledged asset class has prompted governments around the world to look for ways to regulate it. As of early 2024, cryptocurrency regulations are still being developed and researched in various countries, but the pace of these processes varies. National governments, realizing that controlling currency is key to economic management, are looking to increase their control over the cryptocurrency space. Currently, some countries already have partial regulation in place, while others are taking steps to regulate this area as fully as possible.
Let’s look at how the largest countries in the field of cryptocurrencies form their regulatory frameworks. These countries have different approaches to this task, which further complicates the issue of cryptocurrency regulation.
Canada
This jurisdiction attracts cryptocurrency companies with its flexible and favorable regulatory environment for fintech companies and a developed legal system, which provides strong protection. Although cryptocurrency is not recognized as legal tender, Canada actively regulates it.
Canadian authorities are seeking to increase the transparency of the crypto industry and integrate this new asset class into the regulatory framework.
Cryptocurrency exchanges in Canada are regulated similarly to traditional financial institutions. This jurisdiction distinguishes between two types of financial enterprises:
- foreign money service business (FMSB);
- Money Service Business (MSB).
An FMSB is a non-bank financial institution that may be located outside of Canada and provide financial services, while an MSB provides such services domestically. Both types of businesses are required to register with the Financial Transactions and Reporting Analysis Center of Canada (FINTRAC). In addition, companies providing financial services in Canada must comply with the reporting and recordkeeping obligations of the Proceeds of Crime and Terrorist Financing Act (PCMLTFA).
In Canada, cryptocurrency trading platforms and dealers are required to register with the relevant provincial regulatory authorities. This requirement is set by the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC).
The country has also developed federal regulations for cryptocurrencies, published by Canadian banking regulator OSFI in August 2022.
In terms of taxation, cryptocurrency is treated as ordinary goods in this jurisdiction.
United Kingdom
The UK and its protectorates create a favorable environment for the development of innovative digital businesses covering cryptocurrency mining, cryptocurrency exchanges, and e-money transactions.
However, cryptocurrency regulation in this jurisdiction is changing due to a broader transformation in national governance. In October 2022, Rishi Sunak took over as Prime Minister, which caused an uproar in the cryptocurrency community due to his past initiatives. While still in office as Chancellor of the Exchequer, Sunak presented a strategy to make the UK a global center for cryptocurrency technology. Most notably, he directed the Bank of England to investigate the possibility of introducing a central bank digital currency (CBDC) or a national cryptocurrency (“Bitcoin”).
The plan was that a new digital version of the pound sterling would enable people to hold accounts with the Bank of England, increase access to central bank funds, speed up payments, and reduce risks to financial stability. However, the government and the Bank of England have yet to make a formal decision on the introduction of “Britcoin” in the UK.
Although cryptocurrency exchanges in the UK do not need to have a government license, the Financial Conduct Authority (FCA) plays an important role in regulating this area. In 2018, the FCA created Innovation Hub, a platform that provides advice and legal support to crypto market participants. Registration on Innovation Hub is not mandatory, which creates some confusion about the licensing of cryptocurrency activity in the UK. There is also currently no single, universal definition of a crypto asset in the UK.
In April 2022, the British government set out to develop a new system of cryptocurrency regulation aimed at balancing the potential risks and opportunities of this sphere. As a result, a consultation document containing proposals for the future regulatory system was published on February 1, 2023. The document is part of the government’s comprehensive strategy for cryptocurrencies, which builds on previous proposals by Her Majesty’s Treasury (HMT) on stablecoins and cryptocurrency market development.
The UK partially follows the European Union (EU) rules in regulating crypto assets. This is because the country integrated the requirements of the EU’s Fifth (5AMLD) and Sixth (6AMLD) Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) Directives into its legislation before its exit from the EU.
Under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (MLR), UK cryptocurrency companies are required to comply with several requirements aimed at combating money laundering. Also, activities involving the sale or offering of cryptocurrency and related services are subject to the Consumer Rights Act 2015 and the Consumer Protection from Unfair Trading Regulations 2008.
Although investors are still liable to pay capital gains tax on profits derived from cryptocurrency trading, the nuances of taxation in this area may differ. The specific taxation scheme depends on the type of cryptocurrency activity carried out and on who is a participant in the transaction.
Czech Republic
The Czech Republic is one of the most attractive jurisdictions in the European Union for cryptocurrency business. As of today, there is no separate license specifically for cryptocurrency activities in this jurisdiction. Nevertheless, to conduct legal cryptocurrency activities, it is necessary to undergo a general authorization procedure provided by the Register of Trade Licenses, which is administered by the Ministry of Industry and Trade of the Czech Republic.
No corporate account is required to register a company in the form of an LLC in the Czech Republic, and the minimum amount of authorized capital is only CZK 1 per shareholder. Local legislation does not impose any special requirements for the registration of cryptocurrency companies. Therefore, the process of registering a cryptocurrency company in the Czech Republic can take from 1 to 3 weeks, including registration in the Registry of Trade Licenses.
Although unlike traditional financial institutions controlled by the Czech National Bank (ČNB), cryptocurrency companies in the Czech Republic are not subject to mandatory licensing, they are subject to certain obligations in the context of anti-money laundering. Their activities are supervised by the Financial and Analytical Office (FAÚ), a financial intelligence unit whose duties include monitoring the companies’ compliance with the Czech Republic’s Anti-Money Laundering Act. Under this Act, cryptocurrency companies are required to implement AML/KYC policies, comply with certain reporting requirements, and appoint an employee (AML Officer) responsible for compliance requirements.
It should not be overlooked that the Czech Republic, as a member of the European Union, is actively preparing for the changes in cryptocurrency regulation that will occur due to the MiCA regulation coming into force in 2024. MiCA, the development of which began in 2018, aims to create a unified licensing system for all EU member states.
For the Czech Republic, MiCA opens up great opportunities for the development of the cryptocurrency sector. Companies with crypto licenses in the Czech Republic will have access to the single European market and will be able to offer their services throughout the EU while complying with the same regulatory requirements. This, in turn, will increase security and transparency in the Czech crypto asset market, which will certainly strengthen investor and user confidence.
Singapore
Singapore is one of the most favorable jurisdictions for cryptocurrencies in the world. The Monetary Authority of Singapore (MAS), the local financial regulator, is actively working to improve the regulatory framework and regularly publishes clarifications regarding the licensing process for cryptocurrency exchanges.
Singapore categorizes cryptocurrency as an asset rather than a legal tender. That said, it was one of the first states to introduce government regulation of cryptocurrencies. Overall, this city-state creates a favorable environment for the development of cryptocurrency exchanges and crypto startups. The Singapore Cryptocurrency and Blockchain Industry Association (CBIA) actively supports small and medium-sized businesses in this sphere.
Key laws governing the cryptocurrency industry include the Securities and Futures Act (SAF) of 2001 and the Payment Services Act of 2019. The latter introduces the definition of a “digital payment token” (DPT) and requires companies offering linked services to be licensed as payment institutions (small or large payment institutions).
In this jurisdiction, cryptocurrency exchange licenses are only required for exchanges that will act as intermediaries in the trading of tokens, which are classified as securities under the legislation. Service providers offering exclusively digital payment tokens issued by a central bank or financial institution for limited purposes are not required to obtain a license as they are already regulated by other regulations.
In August 2023, MAS introduced a regulatory framework for stablecoins that requires all issuers to meet certain criteria. To use the label “MAS-regulated stablecoin”, stablecoins must be approved by MAS governance, which helps distinguish them from unregulated stablecoins.
Singapore has no long-term capital gains tax, which also attracts cryptocurrency companies to the jurisdiction. However, the Singapore Tax Authority does tax companies that regularly engage in cryptocurrency transactions, treating such gains as income.
Estonia
Estonia has established itself as a progressive and favorable jurisdiction for various cryptocurrency-related activities. Thanks to the implementation of advanced legislation, the country has gained a reputation as a “cryptocurrency haven” in a short period.
In Estonia, the National Financial Intelligence Unit (RAB) is responsible for licensing cryptocurrency transactions. According to the Prevention of Money Laundering and Terrorist Financing Act, companies that conduct cryptocurrency business are required to have a “cryptocurrency license.” This license covers two main categories of services:
- Providing virtual currency wallet services;
- Providing virtual currency exchange transactions.
The license allows cryptocurrency companies to provide cryptocurrency exchange services (including exchanges between cryptocurrencies and between cryptocurrency and fiat currency) and cryptocurrency wallet services (for sending and receiving cryptocurrencies as a means of payment and trading).
Estonia’s tax system also offers two key advantages. First, undistributed profits that are reinvested in the business are exempt from taxation. Second, the tax system is territorial, which means that income earned outside the country is also exempt from tax.
Australia
Australia legally recognizes cryptocurrencies as property and imposes capital gains tax. In this jurisdiction, regulation of the cryptocurrency market is divided between two key bodies:
- Australian Securities and Investments Commission (ASIC), which is responsible for matters related to investor protection and ensuring the fair functioning of the market. The legislative basis for the Commission’s activities is the ASIC Act 2001, which defines its functions and powers.
ASIC registers financial and cryptocurrency service providers in Australia and manages publicly available registers of entities. This regulator has the power to prohibit the activities of companies that violate the laws and initiate legal proceedings against them. ASIC investigates financial irregularities and has the power to impose fines and prosecute individuals and entities that have committed irregularities.
- Transaction Reporting and Analysis Centre (AUSTRAC), which focuses on anti-money laundering (AML) and countering the financing of terrorism (CFT) in cryptocurrencies. AUSTRAC monitors cryptocurrency transactions, identifies suspicious activity, and cooperates with law enforcement agencies to stop illegal activity.
The key regulations governing AUSTRAC are the Anti-Money Laundering and Countering the Financing of Terrorism Act 2006 and the Financial Transactions Reports Act 1988. As of 2017, this regulator requires cryptocurrency companies to comply with its guidelines for implementing the AML/CFT program.
The joint work of ASIC and AUSTRAC provides a comprehensive approach to the regulation of the cryptocurrency market and aims to protect the interests of its participants.
In 2021, Australia announced its intention to introduce a cryptocurrency licensing system and possibly issue a central bank digital currency (CBDC). In October 2023, the Australian Treasury announced plans to develop a regulatory framework, with a draft expected to be published in 2024. There will be a 12-month transition period if the new legislation is approved and implemented.
Malta
Malta, positioning itself as a “blockchain island,” stands out among European Union (EU) countries for having a comprehensive legal framework for crypto assets and services. A few years ago, the Maltese government took an important step by officially recognizing and beginning to regulate cryptocurrency business. The purpose of this decision was to stimulate the development of the innovative sector in the country.
Like other financial service providers in the jurisdiction, the cryptocurrency business is regulated by the Malta Financial Services Authority (MFSA), which is concerned with preserving the integrity of the financial industry and ensuring the stability of the financial sector in the interest of consumer protection.
Malta’s regulatory framework for cryptocurrencies is based on the Virtual Financial Assets (VFA) Act of November 1, 2018. This Act covers:
- classification of assets with distributed ledger technology (DLT);
- the definition of virtual financial assets (VFA);
- establishing rules for companies providing DLT products or services, including licensing procedures for dealing with cryptocurrencies.
Under the VFA Law, DLT assets include virtual tokens, VFs, electronic money, and financial instruments that depend on or utilize DLT.
A VFA is defined as any digital record that is used to store value or as a means of settlement but is not a virtual token, electronic money, or financial instrument.
The regulatory framework of the Virtual Financial Assets (VFA) Act includes three types of authorizations:
- VFA agent registration;
- registration of documents;
- reporting of VFA service providers.
Companies planning to provide VFA services must apply for licensing through a registered VFA agent by completing the online VFA service provider form.
Gibraltar
Gibraltar has several advantages that make it an attractive place to do business, especially for cryptocurrency-related companies. This includes an attractive tax environment for cryptocurrency companies, which encourages them to register and operate in the country. Cryptocurrencies in this jurisdiction are legalized and recognized as a means of payment on par with fiat money, which expands the possibilities of their use. Cryptocurrency exchanges, ICO platforms, and companies providing services related to the issuance of tokens operate legally in the country.
Gibraltar has developed a comprehensive legal framework to regulate cryptocurrency and blockchain activities. The main piece of legislation is the Financial Services Act, passed in 2019, which regulates cryptocurrency companies in Gibraltar. This Act sets out principles for the regulation of crypto-businesses and obliges all DLT service providers to conduct their business with integrity and high ethical standards. It provides legal clarity, investor protection, and compliance with AML and KYC procedures.
The Gibraltar Financial Services Commission (GFSC) is responsible for enforcing cryptocurrency and blockchain legislation and standards in Gibraltar. Under the Financial Services Act, all cryptocurrency companies wishing to operate in Gibraltar are required to obtain a license from the GFSC.
A DLT provider license, issued under Section 8 of the Act, entitles a company to engage in the controlled activity of providing services using distributed ledger technology. The process of obtaining such a license includes an assessment of the applicant’s business model, a review of the company’s security measures, and a review of compliance procedures.
Poland
Poland has positioned itself as an attractive jurisdiction for cryptocurrency businesses, offering favorable taxation conditions and a simplified legalization procedure.
Since October 31, 2021, all cryptocurrency transactions in the country have received the status of regulated activity, which has led to several additional obligations for participants in the crypto market. Nevertheless, as of today, Poland does not have a body issuing licenses for the exchange and storage of cryptocurrencies. To legally operate as a virtual asset service provider (VASP) it is necessary to:
- register a limited liability company (Sp. z o.o.);
- enter it into the cryptocurrency business register at the Chamber of Tax Administration in Katowice through the e-PUAP system;
- pay the authorized capital of PLN 5,000 (approximately EUR 1,200);
- develop and provide AML and KYC procedures;
- appoint a responsible anti-money laundering officer.
Upon successful registration and obtaining the appropriate authorization, the company will be able to legally carry out in Poland:
- exchange of virtual currencies for fiat money;
- exchange between virtual currencies themselves;
- custodial services (storage of private keys on behalf of clients).
It is worth noting that from February 23, 2024, a new law on crypto-assets is being prepared in Poland, which should increase the efficiency of supervision and protection of investors in the cryptocurrency market. According to the draft, the Act should enter into force on June 30, 2024, but some of its provisions will start to apply only from December 30, 2024. The Bill adapts national legislation to European regulations, including the MiCA Regulation.
Key changes include designating the Polish Financial Supervision Service (KNF) as the responsible authority for compliance with the new rules, establishing obligations for token issuers and service providers, obtaining a license to conduct cryptocurrency activities, as well as expanding supervisory powers and introducing administrative sanctions and criminal liability for violations. The law also provides for the possibility of filing applications electronically and defines rules for professional secrecy. These measures are aimed at improving the regulation of the crypto asset market, enhancing trading security, and protecting investors.
Lithuania
Since 2020, Lithuania has positioned itself as a progressive hub for cryptocurrency business, offering entrepreneurs a favorable and regulated environment for activities related to cryptocurrency exchange and cryptocurrency wallet services.
Many cryptocurrencies are allowed in this jurisdiction, including the popular Bitcoin and Ethereum. Cryptocurrency trading is also legally allowed here. Residents can freely buy, sell, and exchange cryptocurrencies on any exchanges, both local and international, as long as they comply with Lithuanian law. It is important that traders adhere to the country’s tax rules and fully declare income earned from crypto trading.
In Lithuania, control over transactions with virtual assets is carried out by the Financial Crimes Investigation Service (FCIS), which is part of the Ministry of the Interior and integrated into the international financial intelligence network. The main mission of FCIS is to combat money laundering, terrorist financing, and sanctions violations. This law enforcement agency also has powers to investigate financial crimes such as tax evasion, money laundering, and illegal receipt or use of financial assistance from the EU.
The Lithuanian Commercial Registry Registrų Centras controls the register of companies licensed to operate with cryptocurrencies. Until 2022, Lithuania operated a system of two types of licenses for operations with virtual currencies: a license for the exchange of cryptocurrencies (exchange license) and a custodial license for crypto wallets. In 2022, the Lithuanian government tightened regulation of the cryptocurrency market to reduce the risks associated with money laundering. As part of this initiative, the process of obtaining a license to work with cryptocurrencies was simplified by introducing a single crypto license. Registrų Centras became responsible for monitoring compliance with formal requirements, including the deposit of authorized capital and the presence of a local AML manager in the company structure.
To obtain a license for cryptocurrency activities in Lithuania, it is necessary to apply to the Bank of Lithuania. It is the authorized body that issues licenses to virtual service providers (VASPs). The application and all necessary documents can be submitted online through the Bank of Lithuania’s e-licensing system.
In addition, changes in the legislation have tightened the rules of customer identification and prohibited the use of anonymous accounts. As of February 1, 2023, the Bank of Lithuania started publishing on its website a list of companies holding licenses for operations with virtual currencies, including exchange and custodial licenses. These measures are aimed at improving the transparency of the market of cryptocurrency service providers.
As for taxes, crypto-business in Lithuania is subject to the general taxation system, which includes several types of taxes applicable to both individuals and companies.
Bottom line
Even though cryptocurrency was introduced in 2009, governments and regulators around the world are still in the process of developing mechanisms to regulate its use.
The main priority is to protect consumers and businesses from fraudulent practices, as well as to implement preventive measures against the illegal use of cryptocurrency. Progress is being made in many countries, but the process is slow and often accompanied by controversy.