Are there any prohibitions on the use or trading of cryptocurrencies in your jurisdiction?
There are currently no express prohibitions on the use or trading of cryptocurrencies in Australia. However, to the extent that cryptocurrencies are financial products, on-selling or trading financial products fall within the existing regulatory regime.
The Government has passed the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019 (Cth) (PIP Act) and released the Corporations Amendment (Design and Distribution Obligations and Product Intervention Powers) Regulations 2018, which may impact the way cryptocurrencies are structured and distributed. The PIP Act introduces new design and distribution obligations in relation to financial products, scheduled to commence April 2021, and provides ASIC with temporary product intervention powers where there is a risk of significant consumer detriment. The product intervention powers are currently available for ASIC’s use.
The purpose of the new regulations is to ensure that financial products are targeted at the correct category of potential investors. In January, ASIC consulted on the proposed administration of its product intervention power. Though ASIC has been empowered to use this power on a market-wide basis, it is required to consult before making any orders and can only take temporary actions like banning a product or product feature, imposing sale restrictions, or amending product information or choice architecture. ASIC intends to release its final regulatory guidance with respect to its product intervention powers and open consultation on the design and distribution obligations later in late 2019.
There are no prohibitions on the use or trading of cryptocurrencies in France; however certain constraints exist, concerning in particular :
- the regulatory capacity of banks and other financial institutions (including regulated funds) to invest in cryptocurrencies; and
- the compulsory licensing, under the loi PACTE, and as PSAN, of trading platforms which exchange cryptocurrencies for fiat money.
Just using cryptocurrencies as a substitute for cash or deposit money to participate in exchange transactions as part of the economic cycle does not require authorisation. A service provider or supplier may receive payment for his or her services in cryptocurrencies without carrying out banking business or financial services. The same applies to the customer. Equally, mining cryptocurrencies in and of itself does not trigger an authorisation requirement as the “miner” does not issue or place the cryptocurrencies. The sale of cryptocurrencies, either self-mined or purchased, or their acquisition are generally not subject to authorisation.
However, under additional circumstances, a commercial handling of the cryptocurrencies may trigger the authorisation requirement under the German Banking Act (“KWG”). Failure to obtain authorisation generally constitutes a criminal offence under section 54 of the KWG.
There are no specific prohibitions in Ireland on the use or trading of pure cryptocurrencies. Their use and trading is subject to generally applicable laws, including Irish criminal laws. So, for example, if cryptocurrency is received as a result of activities which are prohibited under Irish law, the Irish courts have confirmed that it may be seized by the Irish Criminal Assets Bureau as the proceeds of crime (Criminal Assets Bureau v Mannion  IEHC 729).
In addition to the requirements that may arise from qualifying cryptocurrencies as financial instruments or products, the use or trading of cryptocurrencies may be limited or prohibited compared to the IFA provisions and those governing consumer protection and advertisement regulations. Indeed, in 2018 Consob adopted several measures regarding companies that offer investments in cryptocurrencies also through ICOs, qualifying them as a public offering of financial products without the necessary prior authorisation. Similarly, the Italian Competition Authority imposed fines on companies that provide cryptocurrency-related services due to violations of the Consumer Code. Notably, none of the above provisions specifically address cryptocurrencies. However, the lack of an ad hoc regulatory framework has led authorities to more strictly scrutinise related consumer contracts.
In general, no prohibitions on the use or trading of cryptocurrencies apply. However, it is always necessary to analyse the business model and the token structure in order to assess whether e.g. a financial market license or a securities prospectus is required.
In regards to crypto currency exchanges in particular, seeing that there are various forms of crypto-exchanges, varying regulations are applicable in certain cases. Exchanges which are matching the buying and selling interests (Matched-Principal-Trading; multilateral) with regard to utility tokens against fiat and/or crypto are deemed unregulated and only require a trade license with the Office of Economic Affairs (Amt für Volkswirtschaft) for conducting an operating business. With the enactment of the Blockchain Act, certain service providers with regard to tokens will have to register with the FMA and will be subject to the due diligence regime. The settlement in fiat is however considered a regulated payment service (especially since the commercial broker exemption is no longer applicable under PSD II when acting both on the buy- and sell side).
One must also pay attention if tokens are traded against the own book for fiat payments, as this might be deemed as a so called “Wechselstube” (exchange office; bilateral) pursuant to the Liechtenstein SPG (Due Diligence Act; Sorgfaltspflichtgesetz). This is not a licensed activity, but rather, the FMA needs to be notified of this kind of undertaking, and due diligence duties are applicable. If only crypto/crypto pairs are traded against the own order book, this is again deemed an unregulated business activity. Under the TTTL this type of exchange will be required to register with the FMA though if payment tokens are being traded.
There is currently no regulation in place which is specifically directed at cryptocurrencies or cryptoassets. This will change imminently as the fifth EU Anti-Money Laundering Directive (commonly referred to as AMLD V), entered into force on 9 July 2018 and must be implemented by all EU member states by 10 January 2020.
In the Netherlands, the proposed implementation act extends the scope of Dutch AML legislation to include certain virtual currency service providers, and it introduces an obligation for these providers to register with the DNB. To be able to register with the DNB, a provider must demonstrate their ability to comply with specific AML legislation and show that its day-to-day policymakers are fit for their position and their integrity is without doubt. The registration obligation applies to any business providing exchange services, between virtual currencies and fiat currencies, or custodian wallet services within or from the Netherlands. This means that virtual currency service providers who are located in other countries, will also be subject to the licence obligation if they provide their services in the Netherlands.
Furthermore, an entity issuing or selling cryptocurrency in the Netherlands may fall within scope of the Dutch financial regulatory framework, depending on the characteristics of the cryptocurrency that is offered (for example if the crypto qualifies as security or investment object) and the manner in which the cryptocurrencies are offered (for example, directly through payment in fiat currency or indirectly through an investment fund) (see question 13).
Taking into account the absence of any legal act regulating the use or trading of cryptocurrencies, it is rather hard to state whether these actions are legal or illegal. On one hand, there is no direct prohibition and sanction for the use of cryptocurrencies, so someone who is interested in purchasing cryptocurrencies for investment purposes may do it freely and hold the purchased virtual assets of a crypto wallet. On the other hand, there is no legal means of selling or trading cryptocurrencies in Russia (through crypto exchange, for example). What is certain, is that it is prohibited to use cryptocurrencies for payment purposes as they are not classified as a legal mean of payment.
In January 2018, the FSC banned foreigners and minors from cryptocurrency trading to prevent loss by participating in virtual currency investments that have massive fluctuations. Moreover, cryptocurrency trading through anonymous virtual bank accounts has been banned as the name on the trader’s bank deposit account must match the account name at cryptocurrency exchanges.
There are currently no specific prohibitions on the use or trading of cryptocurrencies in Sweden. However, several restrictions may apply depending on the business and services provided and, as such, the business and services must always be reviewed in light of, primarily, the general regulatory framework on financial services and consumer protection.
As mentioned, authorisation may be required from the SFSA prior to conducting certain activities in Sweden. If the business of an entity entails offering bitcoin or other cryptocurrencies and digital currencies used as a means of payment from its own books (i.e. already existing assets), the entity must apply for registration as financial institution with the SFSA.
Switzerland does not prohibit the use or trading of crypto currencies nor are there any specific exchange controls relating to crypto currencies. However, certain activities relating to crypto currencies or other digital assets (e.g. custody, brokerage services or the operation of trading or exchange platforms) may be subject to regulation, licence or registration requirements and/or supervision by the Swiss Financial Supervisory Authority FINMA, other authorities or supervisory or self-regulatory organisations in Switzerland if the business is operated in or out of Switzerland or otherwise has a relevant Swiss nexus.
In its guidance 02/2019 regarding payments on the blockchain dated 26 August 2019, FINMA informed market participants about its interpretation of Swiss anti-money laundering regulation in the context of blockchain payment services. Specifically, the guidance addresses how the Swiss law requirement for financial services providers under FINMA supervision to transfer payment originator and beneficiary information to the recipient institutions in payment transactions must be interpreted in the context of crypto currencies, with FINMA applying a rather restrictive approach. While FINMA holds that originator and beneficiary identification data must not necessarily be transmitted using blockchain technology, it further stated in the guidance that it is currently neither aware of any system at national or international level (such as the SWIFT messaging system) nor of any bilateral agreements between individual service providers that would enable the reliable transmission of such data for the purposes of payment transactions on blockchain.
As a consequence, for the time being, financial institutions subject to FINMA supervision are required to ensure that transfers of tokens to or from external wallets (including in the context of exchange transactions) only involve their own clients who have been appropriately onboarded. "Ownership” of external wallets must be verified using “suitable technical means”, which may prove challenging in practice. Where a token transfer involves the external wallet of a non-client third party, the financial institution will need to complete a full onboarding of such person as if it were a new client. While the guidance applies only to service providers subject to FINMA supervision, it can be expected that recognised Swiss self-regulatory organisations will follow suit with respect to their interpretation of analogous provisions in their anti-money laundering regulations as applicable to their member financial intermediaries.
FINMA has acknowledged that the requirements outlined above are very strict and go beyond the standards stipulated by the Financial Action Task Force (FATF) in its guidance on virtual asset transfers. However, this approach is a reflection of the increased Swiss focus on the prevention of money laundering and terrorist financing and FINMA's intent to preclude any circumvention of the existing regulatory framework using blockchain technology.
Other than the cautionary statements mentioned above, there are no prohibitions on the use or trading of cryptocurrencies in Uganda at this time.
There are currently no specific prohibitions on the use or trading of cryptocurrencies in the UK.
In July 2019, as part of CP19/22 (referenced at question 3 above) the FCA proposed implementing a ban on the sale to retail clients of investment products (such as derivatives and exchange traded notes) which reference cryptoassets. The FCA is of the view that retail consumers cannot reliably assess the value of these products because: (i) the underlying cryptoassets have no reliable basis for valuation; (ii) there is a prevalence of abuse and financial crime in the secondary market for cryptoassets; (iii) there is extreme volatility in cryptoasset prices; and (iv) retail consumers have an inadequate understanding of cryptoassets and there is a lack of a clear investment need for investment products referencing cryptoassets. The FCA estimates that the harm to retail consumers that can be reduced by implementing this ban in the UK is in the range of £75 million to £234.3 million per year. Following its public consultation, the FCA intends to publish a final policy statement on the proposed ban in early 2020.
The US has no outright ban on the use or trading of cryptocurrencies. That said, any such use or trading remains subject to various non-cryptocurrency specific rules governing the financial regulations imposed by the CFTC, which for example found Bitcoin to be a commodity and subject to its jurisdiction, the SEC, if the cryptocurrency is deemed to be a security, and also the IRS and Financial Crimes Enforcement Network’s applicable regulations. The US may not have created many rules specific to cryptocurrencies, but this does not exempt cryptocurrency from the current regulations already in place which may be triggered by such transactions.
Unlike other jurisdictions which have categorically banned the use or trading of cryptocurrencies, there is no prohibition on the mere use and trading of cryptocurrencies in Singapore. That being the case, users and businesses which are involved in or handle digital tokens must comply with the relevant regulations (as discussed in questions 3 and 8 above) as applicable to them.
Although the use or trading of cryptocurrencies is not prohibited in Hong Kong, the Hong Kong Police Force, as well as a number of Hong Kong regulators including the HKMA, the SFC and the Customs and Excise Department, have published statements or circulars warning investors of the risks associated with investing in or trading in cryptocurrencies, as described in the response to question 8 above.
In addition, the SFC’s statements on ICOs published on 5 September 2017 and 9 February 2018 respectively warned market participants that, depending on the facts and circumstances of an ICO, digital tokens that are offered or sold may be “securities” as defined in the SFO, and therefore subject to the securities laws of Hong Kong. The latter statement also disclosed that the SFC had sent letters to seven cryptocurrency exchanges in Hong Kong or with connections to Hong Kong warning them that they should not trade cryptocurrencies which are "securities" as defined in the SFO without a licence. The statement also disclosed that the SFC had written to seven ICO issuers.
In March 2018, the SFC confirmed that ICO issuer Black Cell Technology Limited (“Black Cell”) had halted its ICO to the Hong Kong public and agreed to unwind ICO transactions for Hong Kong investors by returning them the relevant tokens, following regulatory action by the SFC over concerns that Black Cell had engaged in potential unauthorized promotional activities and unlicensed regulated activities. In addressing SFC’s regulatory concerns, Black Cell agreed not to devise, set up or market any scheme that constitutes a CIS unless in compliance with the relevant requirements under the SFO. This followed the SFC’s finding that Black Cell had promoted an ICO to sell digital tokens to investors through its website accessible by the Hong Kong public, with the pitch that the ICO proceeds would be used to fund the development of a mobile application and holders of the tokens would be eligible to redeem equity shares of Black Cell. The SFC considered that the arrangement may constitute a CIS.