Matrixport View_Regulation #11

January is a quiet month in the regulatory topics for crypto currencies. No major stories broke out. No major lawsuits launched. However, at the same time when we see more and more adoption by the institutional investors, we hear also strong voices from the EU and the US to regulate or ban Bitcoins and alike out of AML concerns. Whether these concerns are legitimate or not is a separate debate. What investors must pay attention to is: the more mainstream adoption, the more scrutiny and pressure from governments and surveillance agencies. Now let’s have a look at the big regulatory stories in the first month of 2021:

Policies and regulations around the globe:


President Biden freezes FinCEN’s proposed crypto wallet regulations

One of the first actions President Joe Biden has taken on his first day in office is to freeze Federal regulatory process, including the controversial self-hosted crypto wallet regulations proposed by former Treasury Secretary Steven Mnuchin. The announcement came in a White House memorandum for the heads of various federal agencies, the Financial Crimes Enforcement Network (FinCEN) included. The edict doesn’t specify the crypto wallet proposal, but places a general freeze on all agency rulemaking pending review, effective for 60 days from the date of the memorandum.

Biden’s Treasury Secretary calls cryptocurrencies a “particular concern” for AML

Janet Yellen, a former leader at the Federal Reserve and Joe Biden’s pick for Treasury Secretary, is still suspicious of crypto as a threat for illicit financing. In a virtual hearing of the U.S. Senate Finance Committee held today, Yellen faced questions on combating the financing of terrorism, or CFT, from Democratic Senator Maggie Hassan from New Hampshire. Hassan asked Yellen how she would respond as Treasury Secretary to “emerging financial technology” used to fund criminal organizations and terrorists. The senator called cryptocurrencies a “growing concern” and asked Biden’s pick how she would handle CFT. “We need to make sure that our methods for dealing with these matters — with terrorist financing — change along with changing technology,” said Yellen.

US crypto regulations will return Bitcoin to its digital cash origins

The United States Financial Crimes Enforcement Network, or FinCEN, recently proposed a series of new regulations applying to financial institutions dealing with digital currencies, such as Bitcoin (BTC). To summarize the proposed regulations, exchanges would essentially be required to file a report with FinCEN when a customer makes a purchase in excess of $10,000, and gather Know Your Customer information any time a transaction of $3,000 or greater is conducted using a non-custodial wallet. This means that if a customer buys $3,000 worth of Bitcoin and withdraws it to a wallet they control, they would have to not only prove ownership of that wallet but also provide their name and physical address, along with additional identifying information.


British financial advisor calls on the gov’t to ban crypto transactions

Neil Liversidge, a veteran financial advisor, has called on the government of the United Kingdom to ban transactions in cryptocurrencies like Bitcoin (BTC). Liversidge, the owner of the independent financial advisory firm West Riding Personal Financial Solutions, started a petition urging local financial authorities to stop crypto transactions in the U.K. The petition reads: “Legislate to prohibit the payment by or acceptance of cryptocurrencies by UK resident businesses or individuals, and require UK regulators (the FCA and PRA) to prohibit transactions by UK financial institutions in cryptocurrencies such as Bitcoin.”

Following Brexit, the UK asks crypto industry about rules for cross-border stablecoins

Her Majesty’s Treasury requests and requires the crypto industry’s input on prospective regulation. In a Thursday announcement of open consultation, the United Kingdom’s finance policy department is asking the crypto community to weigh in on a series of proposals: “The government invites views from a wide range of stakeholders, and particularly firms engaged in cryptoasset activities.” While Brexit formally came into effect early last year, New Year’s Eve was the end of freedom to work and live between the United Kingdom and the European Union. The question lingers in today’s consultation as to how much the nation’s crypto rules should follow those of other nations. The consultation asks stakeholders: “What are your views on the extent to which the UK’s approach should align to those in other jurisdictions?” Even further, there is a proposal to require U.K. registration for all firms marketing stablecoins to people in the U.K.: “Due to the digital, decentralised and cross-border nature of stable tokens, the government and UK authorities are considering whether firms actively marketing to UK consumers should be required to have a UK establishment and be authorised in the UK.”


Some Russian officials are being forced to sell their crypto by April 2021

Russia adopted its cryptocurrency law in January, but this legislation does not provide a direct answer to some questions, including how local officials should deal with their crypto holdings. There are at least two other legal initiatives requiring Russian public officials to declare or even get rid of their cryptocurrency holdings entirely in 2021. On Dec. 10, 2020, Russian President Vladimir Putin signed a decree obliging some public officials to disclose their crypto holdings by June 30. The decree was adopted as part of the country’s law “On Digital Financial Assets,” or DFA, which was made effective on Jan. 1. According to the decree, Russian officials or individuals seeking to hold public office must disclose their digital assets, as well as those of their spouse and children. The legislation refers to a general scope of the official establishment, seeking to ensure that the government is as compliant with the local financial declaration rules as ordinary citizens already are. But there is also another regulation that prohibits certain Russian officials from owning any cryptocurrency, in line with the country’s anti-corruption measures. On Dec. 28, 2020, the Russian Ministry of Labour and Social Protection published an informational letter reminding some officials that they are obligated to liquidate their digital financial assets and any digital currencies by April 1, regardless of the country of issuance. This restriction specifically refers to individuals listed in Part 1 of Article 2 of the Russian Federal Law from May 7, 2013 No. 79-FL, which prohibits certain categories of persons to store their funds abroad as well as use foreign financial instruments. The list includes a broad number of key public positions, including running and deputy positions in public office, the board of directors of the Russian central bank, public corporations owned by the Russian Federation, heads of district administrations and several others.


Breach at Indian exchange BuyUCoin allegedly exposes 325K users’ personal data

Users of Indian crypto exchange BuyUCoin have reportedly been affected by a breach compromising personal data of more than 325,000 people. According to a report from Indian news outlet Inc42, a hacking group by the name of ShinyHunters leaked a database containing the names, phone numbers, email addresses, tax identification numbers and bank account details of more than 325,000 BuyUCoin users. However, a later report from Bleeping Computer shows the leaked data may only contain information from 161,487 BuyUCoin members.


Regulatory sandbox and DeFi boom, How Spain pushed crypto adoption despite the pandemic

The year 2020 will go down in history for how the COVID-19 pandemic affected the Spanish economy. Beyond that, however, there have been important events from a governmental and regulatory point of view, as well as those related to private companies and the adoption of cryptocurrencies. The adoption of cryptocurrencies in Spain has continued to grow in 2020. Besides, as far as Bitcoin ATMs are concerned, Spain ranks in the top 10 countries with the most units in the world, with a total of 119 at the time of writing. The DeFi phenomenon was also present in Spain. Various activities were carried out, such as talks and virtual events, as well as some hackathons. The movement of decentralized finance, as it did on a global level, also aroused interest in the Iberian territory.

The Netherlands

Dutch crypto exchange users bemoan additional KYC requirements

Crypto exchange platform Bitstamp is reportedly demanding additional Know Your Customer compliance steps for Dutch-based users. According to a notice sent to Twitter user “Bitcoin Marcus,” — a Bitstamp user — the platform says account holders in the Netherlands have until the end of January to provide additional verification documents or risk their accounts being suspended. As part of the additional KYC protocols, users must provide information about their net worth, nationality and proof of residence. Other documents demanded by Bitstamp include the source of funds — both for fiat and crypto. Indeed, the exchange is reportedly forcing Dutch-based customers to reveal sensitive personal information like their salaries and investment proceeds. These KYC steps are in addition to an earlier order mandating users to whitelist their third-party withdrawal addresses by providing photographic proof of ownership of those wallets.

Dutch Bitcoin exchange drags central bank to court over wallet KYC rule

Dutch Bitcoin (BTC) exchange platform Bitonic has filed a preliminary injunction at a Rotterdam court seeking the suspension of a wallet verification rule enacted by the central bank. Back in November 2019, De Nederlandsche Bank, or DNB, mandated crypto exchanges ensure their users comply with stringent Know Your Customer protocols. These rules included verification steps for withdrawal wallets, which Bitonic called a nuisance. At the time, Bitonic held only one of three licenses granted by the DNB out of 38 applications to the central banks by crypto exchanges. Indeed, 25 out of 38 applicants also sent a joint letter to the DNB asking for greater clarity about the need for such stringent compliance protocols. According to the company’s announcement, the DNB has reportedly failed to address concerns raised by Bitonic over the controversial KYC rule. The exchange also revealed that an independent compliance firm recently provided expert advice on the matter stating that the central bank’s actions lacked any legal merit. For Bitonic, the introduction of sweeping wallet verification protocol violates existing customer privacy laws. “We believe it is of crucial importance that a judge considers DNB’s position so that it becomes clear whether the requirements are legitimate,” the company added in its announcement.

South Korea

South Korea to introduce a 25% tax on crypto trading profits in 2023

The South Korean government issued an amendment on Wednesday to introduce a tax on profits from cryptocurrency trading. Following a legislative notice lasting until Jan. 21, the amendment is likely to be enacted in February, Asia Today reported. It would only start levying taxes on cryptocurrencies in 2023, however. The proposal would introduce a variety of additional taxes on capital gains, with a progressive taxation schedule for gains in stocks. For cryptocurrency holders, anyone making an annual income of more than 2.5 million won ($2,300) from cryptocurrency profits will be taxed at 20%. The threshold is much lower than for stocks, where only gains of over 50 million won ($46,000) will be taxed. For cryptocurrencies owned before the beginning of the tax schedule, authorities will consider the highest of either the market price immediately before 2023, or the actual acquisition price.


Philippines’ central bank to license crypto trading and custody firms

In keeping with the emergence of clear-cut crypto regulations across Southeast Asia, Philippines’ central bank, BSP, has enacted a broader licensing regime for digital asset firms in the country. According to the Philippine Daily Inquirer, all crypto financial service firms in the country must now be licensed by the BSP. Thus, exchanges dealing in crypto-to-crypto trading pairs and custody platforms must now obtain approval from the central bank. The expanded regulatory regime also covers cryptocurrency derivatives platforms. All crypto firms in the country will also have to comply with global financial best practices including Anti-Money Laundering and Countering the Financing of Terrorism. As a result, cryptocurrency transfers above a certain threshold will require identifying information for both the originator and beneficiary parties. For Benjamin Diokno, governor of the BSP, the expanded regulatory regime is necessary to keep up with the pace of development in the crypto space over the last three years. Back in 2017, the BSP issued rules for exchanges involved in fiat-crypto trading pairs.

Updates and news on the most important players/topics in the industry:


FinCEN is now interested in offshore crypto holdings, proposes new regulation

The United States Financial Crimes Enforcement Network, or FinCEN, issued a brief note in January announcing its intention to propose a change in the Bank Secrecy Act regarding reporting of foreign financial accounts holding digital currency. Currently, digital assets are not covered by the Foreign Bank and Financial Accounts regulations. However, the notice indicates that FinCEN wishes to amend these regulations. This would require U.S. citizens to report cryptocurrency accounts held with foreign institutions if they are more than $10,000 in value. There is no indication of when this proposal to amend the regulations may be published, simply that there is an intention to propose it. The note comes just three weeks before an expected change in leadership at the U.S. Treasury Department, as the administration of Donald Trump gives way to incoming President Joe Biden’s team.


Ripple CEO answers 5 key questions about the SEC lawsuit

Ripple CEO Brad Garlinghouse has revealed the firm unsuccessfully attempted to settle its securities violation lawsuit with the United States Securities and Exchange Commission and slammed the “regulatory chaos” around cryptocurrencies. In a Twitter thread addressing what he described as “5 key questions,” the CEO strongly denied the “SEC’s unproven allegations” and claimed his firm is “on the right side of the facts and of history.” Garlinghouse said Ripple would continue to work toward a settlement with the SEC: “Know we tried — and will continue to try w/ the new administration — to resolve this in a way so the XRP community can continue innovating, consumers are protected and orderly markets are preserved.” The SEC filed a $1.38 billion lawsuit against Ripple, Garlinghouse and co-founder Chris Larsen in December 2020 over the sale of XRP as an unregistered security. Since the news broke, more than 25 platforms including Coinbase, Bittrex, OKCoin and Bitstamp have suspended trading or delisted the token. Garlinghouse did not directly address whether Ripple had ever paid for exchanges to list XRP; however, he did say that it was one of the most liquid digital assets in the world and that 95% was traded outside the United States. He was unable to say when the token would be relisted, noting that “Ripple has no control over where XRP gets listed, who owns it,” calling it open-source and decentralized.



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