Challenges of Our Time: Cryptocurrencies & Their Regulation
The very concept of cryptocurrencies derives from technologies and the creation of alternatives to existing payment systems, which for the most part is caused by the negative consequences of financial crises and the injustice within the sphere of financial and legal regulation. Many people are convinced that the cryptocurrency is likely to become an alternative to the established global financial system and open new opportunities to those segments of the population and citizens of those countries that are deprived of the opportunity to work with the banking financial system.
Modern electronic means of payment, called cryptocurrencies are distinguished by decentralised accounting; transaction transparency; lack of external administration and accessibility to any participant globally. When considering cryptocurrency, it is impossible not to mention two concepts which are inextricably linked with “mining” and DLT (Distributed Ledger Technology).
Mining is the process of generating new cryptocurrency coins. Сoins appear in the process of solving formulas, more precisely, in the process of complex mathematical calculations that your computer produces. DLT or blockchain technology, is technology that supports database networks in which there is no need to control and administer processes; technology can be available to any member of the system.
General Regulatory Trends
Regulation in the field of cryptocurrency today is characterised by a lack of unitary standards. Each bank of each jurisdiction is guided by its own approach to the regulation of electronic currencies. Rarely are banks are loyal to digital currencies, making a study of a new area and issuing recommendations. More often, you are likely to face restrictions or a complete ban on such activities.
Any decisions in the sphere of distributed ledger technology must comply with the legal framework of the country in which the company operates. For our part, we would like to mention that the use of DLT can have a significant success if it is considered by the legal system in form of assets, namely loans, debt instruments, shares. However, the question of the best way to integrate technology into the financial and trading infrastructure remains open. If legislation is introduced, potential limitation of the usage of this technology will be of great concern.
The problem of finding best ways to protect the system and the world's population from such danger as cybercrime, data leakage, account takeover fraud, corruption, money laundering, etc. remains unsolved.
As for the main approaches to limiting of technologies and cryptocurrency usage, it should be noted such tools as tax introduction (for example, in the UK some time ago VAT was introduced for operations involving cryptocurrencies), considering operations of their use as only illegal ones and the lack of regulation in order to deter the development of this direction.
Currently the governments in different countries are looking for ways to adopt legislation regulating this sphere. The efforts to criminalise cryptocurrency due to the growing popularity of the phenomenon and the existance of appropriate people's interest, is not currently observed. Nevertheless, there is an obvious effort to control the system and transactions with cryptocurrency are sufficient on grounds of conducting a company audit for money laundering, terrorist financing or other illegal activities.
Legal Aspects of Cryptocurrency Regulation in Gibraltar
On January 1st 2018, the act regulating the use of DLT (Financial Services Distributed Ledger Technology Providers Regulations 2017) came into force in Gibraltar.
The licensing in the Gibraltar Financial Services Commission (GFSC) includes the following activities:
- Mining of virtual currency for other people with the purpose of selling it on a personal note or by their company;
- Services offering for the exchange of virtual currency in fiat (“ordinary”) money or vice versa;
- Storage, placement or valutation of currency for the third parties.
To register a company conducting such activities it is necessary to undergo a preliminary procedure for assessing the risks of a business with a registered agent as well as checking whether a license can be obtained. The registration agent has the right to refuse to continue working with the client if he considers that the risks are too high.
It must be remembered that for the purposes of license obtaining and carrying out the above listed activities it is essential to have an office in the territory of Gibraltar as well as to have a Director who must be a citizen of Gibraltar. The Director will need to undergo a thorough complinace check as well as to present a business plan to the commission.
Legal Aspects Regarding Cryptocurrency Regulation in the UK
Until 2014, the UK was characterised by the absence of cryptocurrency regulation and considered digital currency as single-purpose vouchers that are subject to VAT in the amount of 10 to 20%.
Now within the framework of the EU and the UK, there are no legal acts aimed at regulating cryptocurrency-related activities. However, the most applicable acts in this area are the Markets In Financial Instruments Directive (MiFID), the European Financial Market Infrastructure Regulation (EMIR) and the Central Securities Depositories Regulation (CSDR).
In the case of a cryptocurrency exchange registration in the UK the company's activities will be governed by the Payment Services Directive of 2009 as well as the Law on Counteracting the Terrorism Financing and Legalisation (Money Laundering) of Proceeds from Crime. To carry out the company's activities it will be necessary to obtain a license from the Ministry of Revenue and Customs.
Summing up, I would like to draw attention to the fact that the regulation of cryptocurrency in modern realities cannot be unambiguous due to the opportunities it provides as well as the potential risks that may arise. Despite the potential threat, governments rarely seek to criminalise activities related to cryptocurrency, which gives space for the development of this exciting new sphere.
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