Matrixport View_Regulation #1

Moving towards a better regulated crypto community


In March, we have seen regulators from major economies across the world making decisions, implementing regulations, and proposing ideas. These changes demonstrate that the regulators are not only developing better acceptance and understanding of this new bourgeoning new industry, but are also trying to bring it into a better regulated playground. While new regulations will undoubtedly increase the cost of running businesses and raise concerns for those who value privacy, the higher degree of transparency mandated could also attract institutions from the traditional markets and help the industry’s healthy growth in the longer term.

Highlights from this month’s new regulations:

Multiple countries have introduced new anti-money laundering (AML) and counter terrorism financing (CTF) measure to the cryptocurrency businesses.

  • South Korea passed an amendment to its existing Financial Information Act, requiring that by September 2021, all virtual asset service providers (VASPs) must register with regulators and partner with a single bank for deposits and withdrawals, and must get their systems certified by the Korean Internet Security Agency.
  • Canada’s The Financial Transactions and Report Analyses Center (FINTRAC) announced that it will soon implement new legislative framework that include new reporting requirements for virtual currency transactions, and extend the center’s regulatory mandate to offshore entities.
  • On March 16, the Monetary Authority of Singapore issued a set of guidelines for digital payment token service providers, targeting on illegal activities including money laundering, terrorist financing, and proliferation financing risks. The MAS recommends the service providers to trace previous transactions “as far back as necessary”.
  • In early March, UK’s FCA added additional money laundering regulations, positioning the FCA as the AML overseer for certain crypto objectives. These measures go beyond the 5AMLD, which was introduced by the European Union in January 2020, to include a broader set of activities such as ICOs.

More positive developments:

  • The Supreme Court of India overturned an April 2018 ruling by the Reserve Bank of India, the country’s central bank, which prohibited Indian banks from dealing with cryptocurrency businesses and silenced the once fast-growing market for almost two years. This new legislation has brought about major excitement to the Indian crypto community. However, an industry expert also warned about the vulnerability of crypto’s legality established by the judgment, and noted the possibility that another draft bill to ban cryptocurrencies, release in February, could move through the Parliament.
  • The CFTC published its final guidance on “actual delivery for digital assets”, defining it as when a customer has completed control over the assets and the offeror no longer has any control over the asset by the end of 28 days after the transaction.
  • In early March, Germany’s Federal Financial Supervisory Authority, known as BaFin, released a guidance that has classified digital assets as financial instrument. Earlier in February, BaFin mandated companies offering crypto custody to obtain licenses by the end of this November.
  • In this month, two states in the US, Hawaii and Rhode Islands, introduced sandbox initiatives for digital currency, with the aim to obtain insights that could guide future legislation concerning this industry.

  • In late March, the MAS of Singapore exempted almost 200 companies, including a number of major crypto companies, from the newly adopted Payment Services Act (PSA). These companies, including Ripple, Coinbase, Binance, BitGo, Gemini, and OKCoin, are thus allowed to provide specific payment services in Singapore without holding a PSA license for a limited period of time.
  • The International Organization of Securities Commission, through studying a hypothetical case, concluded that the issuance of stablecoins may fall under securities regulator’s purview.

However, there are also some dark clouds hanging…

  • A legal executive of the Bank of Russia noted that the country might ban the issuance and circulation of cryptocurrencies, as a result of the unfinalized bill “On Digital Financial Asset,” and only holding the currencies would be considered legal. Meanwhile, however, the Ministry of Economic Development of Russia has reportedly prepared a draft law that would allow the testing of cryptocurrency and blockchain developments within a special regulatory sandbox.
  • A federal judge in New York issued a preliminary injunction ruling which finds the distribution of the “GRAM” token would violate US securities law, siding with the SEC. The court noted the main reason is that Telegram, the issuer of GRAM, intends for the token to reach the secondary market.

CBDC: a mixed landscape


This month, we have heard mixed voices concerning central bank digital currency (CBDC) coming from different players. While Europe and US are still debating about the benefits and challenges of CBDC (and probably also busy with cutting interest rates and launching massive quantitative easing programs), China seems to be trying to grasp this opportunity and take a leading role in this new field.

  • On March 24, Global Times, a mouthpiece of the Chinese government, reported that China’s central bank PBOC has completed the development of its sovereign digital currency’s basic function and is now drafting relevant laws to pave the way for its circulation. The development was conducted in partnership with some private companies.
  • In a discussion hosted by the National Development and Reform Commission (NDRC) of China earlier in the month, some experts suggested that the PBOC may accelerate its effort for the CBDC program post the COVID-19 outbreak as part of the stimulus plan to offset the economic downturn. A deputy director of the State Information Center of the NDRC also highlighted CBDC’s potentials for China’s financial system reform and economic and social development.

  • Meanwhile, UK’s central bank, Bank of England, published a discussion paper on CBDC which outlines a number of opportunities and significant challenges that might come with CBDC. The bank states it has not yet made a decision on whether to introduce CBDC.
  • During a panel discussion at MIT’s Bitcoin Expo, three central bank experts agreed that central banks have yet to figure out whether they should issue digital currencies via distributed ledger technology or the traditional centralized system. The experts believe that cryptocurrencies possess intrinsic weaknesses when it comes to privacy, interoperability, and the ability to move value on a consistent basis.
  • Bloomberg reported in early March that, due to regulatory pressure and political pushbacks, Facebook and Libra Association are rethinking the Libra program. They may potentially turn it into a payment network that incorporates other coins issued by central banks and backed by currencies such as the US dollar and euro.

Regulatory breaches / investigations: highlights


Unfortunately, in this month, cryptocurrencies have probably made it to the wider public’s ears in a not-so-pleasant manner by being used in some high-profile incidents that occurred. This is a reminder to the legitimate market participants of the importance of establishing a secure system and a well-around compliance and KYC/AML program.

  • The US Department of Justice charged two Chinese nationals with laundering over USD 100 million worth of cryptocurrency and operating an unlicensed money transmitting business. The funds were stolen in 2018 by Lazarus Group, a U.S.-designated North Korean state-sponsored malicious cyber group, by hacking a cryptocurrency exchange. The two Chinese nationals are also sanctioned by the US Department of Treasury’s Office of Foreign Assets Control. Further, the Criminal Investigation Division of US’ tax authority Internal Revenue Service found that the North Korean co-conspirators used fake IDs and manipulated photos to circumvent the KYC procedures at several exchanges.
  • Four cryptocurrency exchanges will be assisting the police of South Korea in the investigation of Room N case to uncover the identity of the members involved. These members made payments, primarily in the form of privacy-enhancing cryptocurrency Monero (XMR), to CHO Ju- Bin in order to access images and videos of women, many younger than 16, who were forced to perform sex acts on themselves

  • On March 24, 2020, the FBI shut down a Russia-based cyber platform known as DEER.IO, which allegedly allowed criminals to purchase access to cyber storefronts and sell their criminal products or services. With over 24,000 active shops and sales exceeding $17 million, the platform allowed transactions to be made using cryptocurrencies such as Bitcoins.
  • In a risk warning issued on March 5, 2020, UK’s FCA stated that BitMEX has been providing financial services or products in the UK without FCA’s authorization. FCA did not specify if BitMEX has carried out any fraudulent or suspicious activities, or whether it would be subjected to any penalty. According to The Block, an anonymous source claimed that the FCA could issue more such warning notices against exchanges including Deribit, CoinFLEX, and Bybit. A similar warning was also issued against Kraken but was later withdrawn by FCA.


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