Overview of Global Major Cryptocurrency Market Regulatory Policies and Important Licenses

Author: Xi Angxiang, ChainCatcher

Introduction:

Since 2022, several sudden collapse events in the crypto industry have brought severe turmoil to the entire market, causing the previously rapidly growing crypto ecosystem to decline. Market participants have witnessed the market failures resulting from the lack of regulation of stablecoins, hedge funds, and trading platforms, as well as the systemic risks and impacts on the overall stability of the financial system that may arise from the deepening connections between the crypto industry and the core financial system.

In this context, the importance of global crypto regulatory policies is self-evident. By strengthening financial regulation in this area and establishing global standards that can be uniformly implemented by national regulatory authorities, many issues are expected to be addressed in advance.

Currently, the global distribution and development of the crypto market are not synchronized. Some emerging market economies are trying to leverage it to solve their domestic economic problems, while others view it as a threat. Undeniably, it has its own innovation, but it also urgently needs regulation. Therefore, policymakers in major countries around the world are rapidly taking action to manage risks while not stifling innovation.

As a platform focused on the development and cutting-edge trends of the entire industry, ChainCatcher has collected the latest crypto regulatory policies from important global markets and the legal and licensing guidance required to conduct crypto business locally.

Overall, the global mainstream regulatory attitude is primarily cautious. Regulatory authorities in various countries believe that crypto asset service providers offering key functions should be licensed, registered, and authorized. In addition, institutions performing multiple functions, such as stablecoin issuers, should comply with additional prudential requirements and strong regulation.

United Kingdom:

The Financial Conduct Authority (FCA) of the UK was established in 2013 and is headquartered in London. Its predecessor was the Financial Services Authority (FSA). The FCA inherited the regulatory responsibilities for the conduct of financial markets in the UK and related prudential responsibilities from the FSA, overseeing the business conduct of various financial institutions, promoting competition in financial markets, and protecting consumers, reporting directly to the UK Parliament and the Treasury.

The FCA's regulatory scope applies to crypto asset exchange providers and custodial wallet providers, as well as existing financial service companies engaged in crypto asset activities, electronic money institutions, or payment service companies.

Since January 10, 2020, the FCA has received over 300 registration applications. According to the latest data on its official website, as of January 2023, 195 applications have been withdrawn (74%), the agency has approved 41 (15%), and rejected 29 (11%). Among the approved companies are trading platforms such as Coinbase, Kraken, Crypto.com, as well as crypto-native companies like Circle and MoonPay, and traditional financial and asset management companies and their subsidiaries such as Fidelity Digital Assets and TP ICAP.

Dubai:

In February 2022, Dubai issued important laws regarding virtual assets, establishing the Virtual Assets Regulatory Authority (VARA) as an independent regulatory body located within the Dubai World Trade Center, responsible for regulating exchanges, wallets, issuers, and all activities related to cryptocurrencies. VARA aims to regulate the crypto industry by creating a replicable framework, hoping to leverage the expertise of global experts and organizations and collaborate with local relevant financial regulatory authorities to help reduce risks and promote cross-border operations and innovation.

Virtual asset service providers that meet VARA's licensing requirements must comply with four mandatory rule manuals (company, compliance and risk management, technology and information, and market conduct). Additionally, VARA has established rule manuals for seven specific activities to address risks related to virtual assets (consulting, brokerage, custody, trading, lending, payment and remittance, and management and investment).

According to incomplete disclosures from the Dubai Virtual Assets Regulatory Authority, currently, no fewer than 11 companies have obtained VARA licenses, including global trading platforms and digital asset service providers such as Binance, Crypto.com, OKX, Huobi Global, Komainu, Hex Trust, and Bybit.

United States (Taking New York State as an Example):

The U.S. government employs a dual regulatory system at both the state and federal levels.

At the federal level, it is divided into two categories: securities and non-securities. The regulatory authority for securities is the Securities and Exchange Commission (SEC), while the regulatory authorities for non-securities are the Financial Crimes Enforcement Network (FinCEN), the Commodity Futures Trading Commission (CFTC), and the Internal Revenue Service (IRS).

The SEC is the dominant regulatory agency in the U.S. blockchain and digital asset space. Any digital asset deemed to meet the definition of "security" will be subject to comprehensive regulation by the SEC, covering everything from participants to market conduct.

FinCEN focuses on the regulation of digital asset circulation, with the primary task of combating money laundering, terrorist financing, and other financial crimes in financial and digital currency transactions, leaning towards the monetary attributes of digital assets. Digital asset exchanges and their managers essentially fall under the category of money transfer service providers, which, according to legal provisions, must comply with the Bank Secrecy Act and its implementing regulations. Therefore, digital asset circulation service providers must register with FinCEN as MSB licensees, establish appropriate anti-money laundering mechanisms, and comply with anti-money laundering and anti-terrorist financing regulations.

The CFTC focuses on the regulation of corresponding digital asset derivatives trading and circulation. Digital assets are regulated by the CFTC as commodities, while protecting market participants from fraud.

The IRS is responsible for collecting taxes and enforcing tax laws. As a category of digital assets, profits from the sale of digital currencies are subject to capital gains tax.

At the state level, each state independently conducts research on digital asset technology and regulatory issues, with regulatory authorities including the Office of the Comptroller of the Currency, state financial management agencies, and state tax authorities.

Currently, the most clearly defined crypto regulatory policy is in New York State. It has issued the BitLicense regulatory framework through the state financial management agency as the leading authority since 2015.

The BitLicense is a virtual currency business license issued by the New York State Department of Financial Services (NYSDFS) designed for companies or individuals engaged in virtual currency business activities. The first BitLicense was issued in 2015. On June 25, 2020, New York regulators implemented a more "lenient" framework, allowing potential licensees to collaborate with existing BitLicense holders to obtain specialized guidance related to structure, capital, systems, and personnel requirements.

According to the latest disclosure from the New York State Department of Financial Services, there are currently over 20 regulated entities holding BitLicenses, including crypto companies such as Coinbase, Circle, Genesis, Xapo, as well as fintech companies like Block, PayPal, Robinhood, and SoFi.

Singapore:

Singapore's crypto market is centrally regulated by the Monetary Authority of Singapore (MAS), which clearly distinguishes between types such as digital securities and digital currencies, categorizing them under existing regulatory frameworks for securities and currencies.

Currently, MAS has listed three types of licenses: Money-Changing License, Standard Payment Institution (SPI) License, and Major Payment Institution (MPI) License. Currently, SPI and MPI can apply to digital currency exchanges.

Additionally, the central bank of Singapore issues Digital Payment Token (DPT) service licenses, enabling companies to provide cryptocurrency services. It is reported that Crypto.com, Genesis, and Sparrow Exchange have obtained this license. Furthermore, at least 11 DPT service providers have received licenses and in-principle approvals.

Hong Kong, China:

The Chinese government adopts a prudent regulatory approach in Hong Kong, with regulatory authorities including the Securities and Futures Commission (SFC), the Hong Kong Treasury, and the Hong Kong Monetary Authority.

Its main regulatory ideas are twofold:

First, it clearly distinguishes between types of digital assets such as digital securities and digital currencies, categorizing them under existing regulatory frameworks for securities and currencies. The Hong Kong SFC is primarily responsible for the regulation of digital securities and related derivatives issuance and trading, while the Hong Kong Treasury will be responsible for regulating digital currencies and other digital assets in the future.

Second, it continues to use existing license types and implements a licensing management mechanism for digital asset exchanges. The Hong Kong SFC allows digital asset exchanges to apply for Class 1 (securities trading) and Class 7 (automated trading services) licenses from the existing 10 types of licenses, and is considering opening up Class 9 (asset management) licenses.

Currently, the Hong Kong SFC only issues licenses to centralized virtual asset trading platforms. According to the SFC's official website, two virtual asset trading platforms have obtained licenses: OSL Exchange and HashKey Pro.

Japan:

The regulatory authorities in Japan's crypto sector are the Financial Services Agency (FSA) and the Japan Virtual Currency Exchange Association (self-regulatory organization). It adopts a layered regulatory approach, prioritizing anti-money laundering/anti-terrorist financing regulations, followed by the regulation of trading platforms to protect user interests.

Japan has established targeted and comprehensive provisions for crypto assets based on its existing relatively complete legal framework, ensuring the legality of crypto asset regulation while granting certain powers to individual self-regulatory organizations, forming a complete regulatory model of "administrative licensing + statutory information disclosure + industry self-regulation."

According to official disclosures from the FSA, there are currently 30 crypto companies that have obtained licenses for registered crypto asset trading service providers in Japan, including global and local trading platforms such as Coinbase, Huobi Japan, OKCoin Japan, SAKURA Exchange BitCoin, and many crypto service providers like Tokyo Hash.

Spain:

The Bank of Spain requires relevant crypto companies operating within its territory to register as Virtual Asset Service Providers (VASP). This registration will enable companies to provide crypto asset exchange, custody, and other services in Spain in accordance with the requirements of its central bank's anti-money laundering and anti-terrorist financing (AML/CTF) rules.

According to the official website of the Bank of Spain (BDE), a total of 66 companies have obtained the registration license to engage in virtual currency and fiat currency exchange services and custodial wallet services, including Binance, Bitbase, Bit2me, Blox, eToro, Uphold, Bitpanda, Jobchain, and others.

Bermuda:

In September 2018, the Bermuda Monetary Authority (BMA) released the Digital Asset Business Act (DABA), followed by the issuance of the 2018 Digital Asset Business (Cybersecurity) Rules, the 2018 Digital Asset Business (Customer Disclosure) Rules, and the 2018 Digital Asset Business (Prudential Standards) (Annual Returns) Rules. Additionally, anti-money laundering/anti-terrorist financing legislation applicable to other financial sectors also applies to digital asset businesses.

DABA requires anyone conducting digital asset business in Bermuda (unless exempted) to apply for a license from the BMA. Licenses are divided into two categories. Class F licenses are full licenses without a specific time limit, but may be subject to restrictions if deemed necessary by the BMA; Class M licenses are intended to serve as a regulatory sandbox for financial companies, particularly focusing on those wishing to innovate and test new products and services. Class M licenses are only valid for a specified period, after which the licensee may cease operations.

According to disclosures from the Bermuda Monetary Authority (BMA), a total of 17 companies have obtained local digital asset business licenses, including both crypto-native companies like Coinbase and Circle, as well as fintech companies like Cash App.

Gibraltar:

Gibraltar introduced a licensing system for blockchain companies as early as 2018. Whether for ICOs or cryptocurrency exchanges, as long as they meet the requirements set by the Gibraltar Financial Services Commission (GFSC), they can operate legally and compliantly. Any company using blockchain technology must obtain a Distributed Ledger Technology (DLT) provider license, which grants permission to provide various services.

Cryptocurrency projects in Gibraltar are exempt from taxation, so projects related to cryptocurrencies only need to pay a 10% corporate income tax. Additionally, capital gains and dividends are not taxed. Furthermore, if certain foreign-sourced income generated by the company's activities is unrelated to the content covered by the DLT license, that income may also be exempt from taxation.

According to official disclosures from the Gibraltar Financial Services Commission, a total of 12 companies have obtained Gibraltar DLT licenses, including crypto trading platforms and service providers such as Huobi, eToro, and Quedex.

Estonia:

In January 2021, the Estonian Ministry of Finance released a legislative draft tightening the regulation of the country's crypto industry. The Estonian Financial Supervisory Authority, Finantsinspektsioon, is specifically responsible for regulating cryptocurrency businesses.

According to the new regulations, crypto companies operating in Estonia will be required to report to Finantsinspektsioon. The previous 381 license holders must reapply for operating licenses from the financial supervisory authority. According to news from December 2020, the Estonian Financial Intelligence Unit (FIU) revoked the licenses of over 1,000 crypto companies in 2020.

Finantsinspektsioon stated that virtual currency trading is subject to anti-money laundering regulations, and relevant companies must pay attention to anti-money laundering and terrorist financing regulations. If providing virtual currency exchange for fiat services and virtual currency wallet services, appropriate authorization from the financial intelligence unit must be obtained.

Additionally, Estonian financial regulatory authorities require relevant companies to comply with the current Securities Market Act (SMA) and the Obligations Act (LOA).