This year has been a busy one for regulations in cryptocurrencies. Both at a supra-national level, with the FATF, as well as at the national level, many countries have actively issued new rulemaking or undertaken significant enforcement or monitoring activity. AML/KYC was a predominant theme of regulatory activity this year, though some significant new frameworks were issued as well. Here is our round-up of a few key regulatory developments in 2020 enforced by countries across the globe.
Financial Action Task Force (FATF)
- 12-Month Review of The Revised FATF Standards on Virtual Assets and Virtual Asset Service Providers
A review of the FATF finalised amendments to its global Standards published in 2019 was published in June, to place anti-money laundering and counter-terrorism financing (AML/CFT) requirements on virtual assets and virtual asset service providers (VASPs).
2. FATF Report on Virtual Assets Red Flag Indicators of Money Laundering and Terrorist Financing
Published in September, this report flags indicators associated with Virtual Assets to assist reporting entities, including financial institutions (FIs), designated non-financial businesses and professions (DNFBPs), and VASPs. It also facilitates reporting entities’ application of a risk-based approach to their Customer Due Diligence (CDD) requirements.
The United States of America
- Office of the Comptroller of Currency Chief Counsel’s Interpretation on National Bank to Hold Stablecoin Reserves
In October, the Chief Counsel of OCC addressed the authority of a national bank to hold deposits that serve as reserves for certain “stablecoins.” A bank providing services in support of a stablecoin project must comply with all applicable laws and regulations and ensure that it has instituted appropriate controls and conducted sufficient due diligence commensurate with the risks associated with maintaining a relationship with a stablecoin issuer.
The U.S Department of Justice released its Report of the Attorney General’s Cyber Digital Task Force titled ‘Cryptocurrency: Enforcement Framework’ in October. The enforcement framework discussed the current misuse and illegal usage of cryptocurrency and identifies some key legal authorities to combat criminal and national security threats. It also discusses approaches for addressing the growing public safety challenges related to cryptocurrency.
3. FinCEN proposal on Travel Rule
In October, the Financial Crimes Enforcement Network (FinCEN) and the Federal Reserve Board today invited comment on a proposed rule that would amend the recordkeeping and travel rule regulations under the Bank Secrecy Act. FinCEN and the Board, pursuant to their shared authority, are proposing amendments to the recordkeeping rule jointly, while FinCEN, pursuant to its sole authority, is proposing amendments to the travel rule.
4. FinCEN regulation on Unhosted wallets
In December, The Financial Crimes Enforcement Network (FinCEN) issue a notice titled “Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets” to seek public comments on a proposed rulemaking which would place an obligation on banks and money service businesses (MSBs) to submit reports, keep records, and verify the identity of customers in relation to transactions involving convertible virtual currency (CVC) or legal tender digital assets (LTDA).
Some notable cases in the United States of America
- SEC v. Blockchain Developer Telegram (January, 2020)
Securities and Exchange Commission filed a suit barring the launch of the Telegram Open Network Blockchain. While granting injunction, the judge held that based on the facts surrounding Telegram’s plan to distribute a new digital currency to trade on its TON platform, the SEC was likely to succeed in proving that the blockchain’s developers engaged in the sale of unregistered securities.
2. BitMEX Case: United States v. Arthur Hayes, Benjamin Delo, Samuel Reed, and Gregory Dwyer (October, 2020)
The US Department of Justice claimed that the 4 accused were engaging in illegal activities like using weak Anti-Money Laundering and Know Your Customer policies.
- Action Plan for a comprehensive Union policy on preventing money laundering and terrorist financing.
In May, the European Union released its Action Plan to prevent money laundering and terrorist financing with the objective of enforcing a zero-tolerance policy for illicit money within the European Union. It intends to implement a comprehensive AML/CFT policy, adapted to the specific threats, risks, and vulnerabilities currently facing the European Union.
2. MiCA regulation of EU
In September, Markets in Crypto-assets (MiCA) was developed to help streamline distributed ledger technology (DLT) and virtual asset regulation in the European Union (EU) while protecting users and investors. This proposal is a part of the Digital Finance package, a package of measures to further enable and support the potential of digital finance in terms of innovation and competition while mitigating the risks.
- Internet and Mobile Association of India (IAMAI) v. Reserve Bank of India (March, 2020)
Cryptocurrency industry players under the IAMAI challenged the circular of RBI banning cryptocurrencies in the Supreme Court of India. After two years of delibrations, in March 2020, the Supreme Court of India quased the circular as being illegal and in violation of the Constitutional right to freedom of trade. Although the prohibition is no longer in force, a legislative framework has not yet been created in India, sustaining an environment of regulatory uncertainty.
- A Guide to Digital Token Offerings- Monetary Authority of Singapore
This paper was published in May and provides a general guidance on the application of the relevant laws administered by MAS in relation to offers or issues of digital tokens in Singapore.
2. Consultation Paper on a New Omnibus Act for the Financial Sector- Monetary Authority of Singapore
This paper was published in July to enforce a financial sector-wide regulatory approach to combat the emerging risks and challenges that impact the financial sector.
- Ordinance No. 2020-1544 of December 9, 2020
The ordinance on Strengthening the AML- CFT System Applicable to Digital Assets ensures compliance with the FATF recommendations concerning the compulsory subjection of digital asset services currently covered on a voluntary basis, namely: activities of exchanging digital assets for other digital assets (known as “crypto-to-crypto”) and digital asset trading platforms. This ordinance proposes to strengthen the fight against the anonymity of transactions in digital assets.
- South Korea legalizes cryptocurrencies
In March, South Korea passed the bill on legalizing cryptocurrencies turning it into the Act on Reporting and Use of Specific Financial Transaction Information.
- Ordinance to Adapt Federal Law to Developments in Technology of Distributed Electronic Registers
In October, the Swiss Parliament unanimously passed a law amending local laws to be consistent with blockchain operations and developments in distributed ledger technology.
The United Kingdom
In October, the Financial Conduct Authority passed a policy statement that states rules to ban the marketing, distribution, and sale of derivatives and exchange-traded notes (ETNs) that reference certain types of crypto assets to retail consumers.