How are cryptocurrencies treated under the regulatory framework in your jurisdiction?


Bermuda Small Flag Bermuda

As of the date of writing, cryptocurrencies are regulated primarily under the Digital Asset Business Act 2018 (DABA). DABA regulates digital asset business carried on in or from within Bermuda and provides that a person cannot carry on digital asset business in or from within Bermuda unless the person is a licensed undertaking in one of the specified classes or satisfies the requirements as set out in a corresponding exemption order pursuant to DABA.

Pursuant to section 2(2) of DABA, ‘digital asset business’ is defined as:

(a) issuing, selling or redeeming virtual coins, tokens or any other form of digital asset;
(b) operating as a payment service provider business utilising digital assets which includes the provision of services for the transfer of funds;
(c) operating as an electronic exchange;
(d) providing custodial wallet services; or
(e) operating as a digital asset services vendor.

If a company wishes to carry out digital asset business as defined under DABA, it is required to apply for a license from the Bermuda Monetary Authority, for either a class F license (full license) or a class M license (temporary license). DABA also stipulates mandatory submission of a business plan and imposes ongoing reporting obligations, disciplinary actions and civil penalties for breach of requirements, as well as minimum criteria for licensing.

Cayman Islands Small Flag Cayman Islands

Cryptocurrencies are subject to the existing Cayman Islands regulatory framework. There is no statutory or regulatory definition of ‘cryptocurrencies’ under Cayman Islands law nor any specific legislation which regulates cryptocurrencies.

The following legislation may be of relevance to cryptocurrencies offered by a Cayman Islands entity:

  1. The Proceeds of Crime Law, Anti-Money Laundering Regulations and existing guidance notes
  2. The Securities Investment Business Law
  3. FATCA and the Common Reporting Standards
  4. The Money Services Law
  5. Mutual Funds Law
  6. Beneficial Ownership Regime

Cyprus Small Flag Cyprus

The provision of services relating to cryptocurrencies are not currently subject to any specific or bespoke licensing regulation in Cyprus (with the exception of the anti-money laundering regime – see below). However determining whether cryptocurrency or a crypto-asset will be subject to securities, derivatives and other regulation is not a simple exercise and will require analysis against numerous regimes including those under the Business of Credit Institutions Law 1997, Investment Services Law 2017, the Payment Services Law 2018 and the Electronic Money Law 2012. CySEC has issued announcements informing individuals who engage in cryptocurrency transactions about the respective risks associated from the purchase, possession or trading of same but has conceded that these as likely to be permissible under current local law.

In terms of the treatment of crypto currencies under the Cypriot anti-money laundering regime, we do note that the so-called Fifth Anti-Money Laundering Directive.

(EU) 2015/849 (5AMLD) expressly brings providers of exchange services between virtual currencies and fiat currencies as well as custodian wallet provider within the scope of the definition of “obliged entities”, meaning that Cypriot based exchanges and wallet providers will soon need to adhere to AML and KYC obligations in much the same way as a bank or other financial institution would need to. 5AMLD will be implemented in Cyprus through amendments to the Prevention and Suppression of Money Laundering and Terrorist Financing Law 2007 (the AML Law).

Denmark Small Flag Denmark

At present, cryptocurrencies are not treated under any specific regulatory framework in Denmark. Therefore, cryptocurrencies and legal fields related to cryptocurrencies (e.g. initial coin offerings, decentralized autonomous or-ganizations, smart contracts, etc.) are likely not subject to any financial regu-lation.

In terms of the financial regulation of cryptocurrencies in Denmark (and thus not e.g. the tax-related legal framework), the Danish FSA seems to act in ac-cordance with EU authorities.

Meanwhile, a revision of the 4th EU AML-directive has been passed this year and will come into effect during the course of 2019. With this directive custo-dian wallet providers and providers of exchanging services between virtual currencies and fiat currencies will become subject to AML regulation and KYC requirements.

Finland Small Flag Finland

Finland is preparing an Act on Providers of Virtual Currencies in the course of implementing the Fifth Anti-Money Laundering Directive. The new Act is expected to be in force in the beginning of 2019.

Cryptocurrencies or virtual currencies are currently not explicitly regulated by Finnish law and they are not considered to be payment instruments under the payment service legislation. The proposed Act would both define virtual currencies for the first time under Finnish law and also set specific requirements for those providing services related them, including a requirement to register with the FIN-FSA. The scope of the Act would cover also issuers of virtual currencies (when the identity of such is known).

Fintechs providing services related to cryptocurrencies are also bound by applicable other legislation and, thus, especially consumer protection legislation and tax issues should be taken into account.

From the perspective of tax law, even when there is no specific tax legislation on cryptocurrencies, the general tax legislation and principles apply. The Finnish Tax Administration has issued guidance on tax aspects related to cryptocurrencies, most recently updated in May 2018 (A49/200/2018). There is also published case law on certain cryptocurrency related tax questions but none of the cases are yet final. Overall, the tax practice and case law on various tax questions related to cryptocurrencies is expected to develop over the coming years.

France Small Flag France

Cryptocurrencies are experiencing a favourable evolution of the regulatory framework. Indeed, Ordinance No. 2017-1674 dated 8 December 2017 provides for the amendment of article L. 211-3 of the MFC in order to authorize the registration of financial securities which are not admitted to a central security deposit within the meaning of Regulation 909/2014/UE of 23 July 2014 (as transposed in article L. 420-1 of the MFC as of 3 January 2018) on distributed ledgers (dispositifs d'enregistrement électronique partagés). In accordance with article L.211-17 of the MFC as of the Ordinance Date, registration of financial securities on a distributed ledger shall be considered as a book entry (inscription en compte) and shall act, in accordance with article L. 211-16 of the MFC as of the Ordinance Date, as a proof of ownership.

It should also be noted that similar provisions were set forth in Ordinance No. 2016-520 dated 28 April 2016, which amended article L. 223-12 of the MFC to allow for minibons, a kind of promissory note (bon de caisse) issued via a crowdfunding platform¸ to be transferred on a distributed ledged. However, Ordinance No. 2016-520 also amends article L. 211-1 of the MFC in order to expressly provide that minibons are not financial securities.

Furthermore, a recent report was presented by Jean Pierre Landau to Bruno Le Maire on the management of Bitcoin and other cryptocurrencies. His final recommendation is to “avoid direct regulation and experiment with a license for exchange platforms” (except about the anti-money laundering and counter-terrorist financing regime). Indeed, a direct regulation “would make it necessary to define, classify and thus rigidify essentially cryptocurrencies, and thus to take the risk of being mistaken and to direct innovation towards regulatory evasion”.

However, the recommended approach is to regulate the interfaces, essentially the exchange platforms. The report recommends, on the one hand, to define minimum principles of transparency, integrity and robustness at the global level and, on the other hand, to experiment at the national level with a specific status like a single approval regime for cryptocurrency service providers This status would be granted for two to three years and would erase a single European statute, like “Euro Bitlicense” like New York’s and Japanese’s BitLicenses (New York granted this kind of licences to Ripple in 2015).

Another track recommended by the report is to promote a kind of right to an account for actors in crypto-finance because French entrepreneurs in the sector, who complain about refusals and difficulties to open an account, are forced to turn to foreign banks.

Germany Small Flag Germany

In Germany a bitcoin is deemed to be a financial instrument, which is regulated according to the German Banking Act (Kreditwesengesetz – “KWG”). With regard to banking business and financial services anti-money laundering and data protection regulation are also to be complied with. Whether a license is needed in this context depends on the business model. According to the leaflet on virtual currencies (VC) by the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – “BaFin”) the following applies in general: (i) Just using VCs as a substitute for cash or deposit money to participate in ex-change transactions as part of the economic cycle does not require authorization; (ii) Those FinTechs that are buying and selling VCs commercially in their own name for the account of others carry out principal broking services which are subject to authorisation; (iii) Providers that act as "currency exchanges" offering to exchange legal tenders against VCs or VCs against legal tenders carry out trad-ing for own account and are subject to authorization, when VCs are not only mined, purchased or sold in order to participate in an existing market, but when a special contribution is made to create or maintain that market. Due to the addi-tional service element, this then constitutes trading for own account that requires authorization, too.

Gibraltar Small Flag Gibraltar

Cryptocurrency itself is not regulated in Gibraltar. The DLT Regulations, however, regulate entities that, by way of business, either store or transmit value belonging to others, using DLT. It is expected that the forthcoming Token Offering Regulations will focus on three key aspects, namely:

  • the promotion, sale and distribution of tokens;
  • the operation of secondary market platforms trading in tokens; and
  • the provision of investment and ancillary services relating to tokens.

It is necessary to consider tokens within the context of Gibraltar’s existing securities legislation and electronic money regulations as tokens may have certain features or characteristics that bring them within the scope of such legislation. Tokens, due to their intended purpose and nature, may be considered akin to traditional regulated financial instruments such as shares, debentures, derivatives, options and other securities. Each token and its use case must be analysed on a case by case to determine whether or not it is caught by such legislation.

Malta Small Flag Malta

The Virtual Financial Assets Act (Chapter 590) (‘VFAA’) regulates the realm of cryptocurrencies in Malta. It spearheads the implementation of a bespoke ‘financial instrument test’ applicable to issuers, agents and licence-holders by bestowing on the MFSA the power to determine the nature of a DLT asset and whether it qualifies as a virtual financial asset. A virtual financial asset is in turn defined under the VFAA as any form of digital medium recordation that is used as a digital medium of exchange, unit of account, or store of value and that is not (a) electronic money; (b) a financial instrument; or (c) a virtual token. The two-layered test primarily focuses on whether the DLT asset is a virtual utility token or otherwise. It then shifts focus on whether the DLT asset satisfies the elements of the various financial instruments under the Directive 2014/65/EU (MiFID). If the asset is a financial instrument, as defined under MiFID, it will fall within scope of the same Directive. Otherwise, by not qualifying as a utility token, a financial instrument, or electronic money, the DLT asset will qualify as a virtual financial asset under the VFAA, and thus be subject to a light-touch, principles-based regulation under the same act.

Israel Small Flag Israel

The regulatory regime in Israel in respect to cryptocurrencies is expected to change dramatically in the near future. According to the Supervision Law, “Virtual Currency” is included in the definition of a “financial asset” for which providing services requires a license of the Supervisor on Financial Services.

    In addition, a few relevant legislation initiatives are currently under discussion:

  • The Interdepartmental Committee to Examine the Regulation of Initial Coin Offerings (ICOs) established by the Israeli Securities Authority published an interim report on March 19, 2018 (the “Interim Report”). The ISA’s position, as reflected from the Interim Report, is that the total circumstances and features of each cryptocurrency should be specifically examined in order to determine whether it should be deemed as a security. The Interim Report also examines certain lenient regulation schemes that will be adjusted to the unique features of cryptocurrencies that were deemed as securities. See also answer to question 6 above for actions of the Anti-Money Laundering Authority.
  • The Draft Payment Services Law may also apply to payment services that deal with virtual currencies.

Japan Small Flag Japan

14.1 Definition of Virtual Currency

The Payment Services Act ("PSA") defines "Virtual Currency" and requires a person who provides Virtual Currency Exchange Services to be registered with the JFSA.
The term "Virtual Currency" is defined in the PSA as:

(i) proprietary value that may be used to pay an unspecified person the price of any goods purchased or borrowed or any services provided and may be sold to or purchased from an unspecified person (limited to that recorded on electronic devices or other objects by electronic means and excluding Japanese and other foreign currencies and Currency Denominated Assets; the same applies in the following item) and that may be transferred using an electronic data processing system; or
(ii) proprietary value that may be exchanged reciprocally for proprietary value specified in the preceding item with an unspecified person and that may be transferred using an electronic data processing system.

"Currency Denominated Assets" means any assets that are denominated in Japanese or other foreign currency. Such assets do not fall within the Virtual Currency definition. For example, prepaid e-money cards usually fall under Currency Denominated Assets. If a coin issued by a bank is guaranteed to have a certain value of fiat currency, such a coin is unlikely to be treated as Virtual Currency but rather as Currency Denominated Assets (for detail. please see No.22 below).

14.2 Definition of Virtual Currency Exchange Services

The term “Virtual Currency Exchange Services” means any of the following acts carried out as a business:

(i) sale and purchase of Virtual Currency or exchange of Virtual Currency for other Virtual Currency;
(ii) intermediary, brokerage or delegation for the acts listed in (i) above; or
(iii) management of users’ money or Virtual Currency in connection with the acts listed in (i) or (ii) above.

A person so registered with the JFSA is called a Virtual Currency Exchange Service Provider. Only Virtual Currency Exchange Service Providers may engage in Virtual Currency Exchange Services. A Foreign Virtual Currency Exchange Service Provider who did not register with the JFSA is prohibited from soliciting items (i) through (iii) above to persons in Japan. Advertisements in the website of Foreign Virtual Currency Exchange Service Provider fall under the definition of solicitation, except where reasonable measures (such as prevention of access from Japan by blocking the Japanese IP address and disclaimer language cautioning that residents of Japan cannot participate in the transaction) have been taken so that the advertisements will not lead to transactions related to Virtual Currency Exchange with persons in Japan.

The applicant must be (i) a stock company (kabushiki-kaisha), or (ii) a Foreign Virtual Currency Exchange Service Provider which has an office and representative(s) in Japan. Accordingly, any foreign entity wishing to register as a Virtual Currency Exchange Service Provider with the JFSA must establish either a subsidiary (in the form of kabushiki-kaisha) or a branch in Japan.

In addition, the applicant must have (a) sufficient financial basis (minimum capital amount of JPY10 million and a positive net assets amount), (b) a satisfactory organizational structure and certain systems to conduct the Virtual Currency Exchange Service appropriately and properly, and (c) certain systems to ensure compliance with relevant laws and regulations.

Mexico Small Flag Mexico

In accordance with Article 30 of the Fintech Law, a digital asset is ‘the representation of value recorded electronically and used by the public as a means of payment for all types of legal acts and whose transfer can only be carried out by electronic means, without the virtual asset being understood as a legal tender currency in the national territory, a foreign exchange or any other asset denominated in legal tender or foreign currency’.

For an asset to be considered a digital asset in accordance with the Fintech Law, the following conditions must be met: (i) it must represent a value; (ii) it must be registered electronically; (iii) it must be used by the public as a means of payment; and (iv) its transfer may only be possible by electronic means

The Fintech Law also gives the Bank of Mexico the authority to define the characteristics, conditions and restrictions of cryptocurrency transactions in Mexico.

British Virgin Islands Small Flag British Virgin Islands

There is presently no recognition of virtual currencies (VCs) in the BVI as being equivalent to standard, or better ‘fiat’, currency (FC). As such, any reference in BVI legislation to ‘currency’ or ‘money’ will be interpreted so as to exclude VC. Unlike in the EU, there is no specific electronic money regulation in the BVI. As such, BVI definitions of ‘money’ and ‘currency’ are dealt with under older domestic legislation. The two principle enactments dealing with the meaning of money in the BVI are the Legal Tender (Adoption of United States Currency) Act 1959 (LTUSA) and the Coinage and Legal Tender Act 1973 (CLTA). The combined effect of both the LTUSA and the CLTA in the BVI is that the US dollar is recognised as being the legal tender of the BVI, and in rare cases the BVI Commissioner of Currency, the Financial Secretary, is given limited responsibility for regulating coinage issued under the CLTA (though in practice these powers are used very rarely).

The LTUSA and CLTA aside, all other BVI enactments assume that the reader would understand the meaning of references to money and currency and as such these terms are not generally defined. Consequently, whilst it is clear that such references are not limited to legal tender of the BVI, i.e. US dollars, it is implied that they do refer to FCs more generally and would exclude VCs. As a result, VCs do not fall within the current BVI regulatory framework and are not currently regulated.

Indonesia Small Flag Indonesia

SSEK: BI issued an official statement banning cryptocurrency, and further strengthened this position with the issuance of the PTP Regulation. While the wording of the PTP Regulation suggests that the ban mainly concerns the use of cryptocurrency as a method of payment in Indonesia, Indonesian regulators, for the most part, have nonetheless adopted a rather strict approach toward the use of cryptocurrency in Indonesia, going so far as to oppose having cryptocurrency as a commodity that can be traded on futures exchange.

Regulators and financial institutions here have justified their stance on cryptocurrencies such as Bitcoin by pointing to high price volatility, limited acceptance network, no central party administering their issuance, and customer protection risks.

Portugal Small Flag Portugal

The current regulatory approach in Portugal has been to exclude cryptocurrencies from the qualification of “legal currency” and not issuing specific regulation dealing with them. Both the Bank of Portugal and the CMVM share this understanding.

The Bank of Portugal has, as far back as 2013, issued a clarification under which it considered that bitcoin (and thus, all remaining cryptocurrencies) cannot be considered secure currency, given that its issuing is done by non-regulated and non-supervised entities. In addition, the users bear all the risks, as there is no fund for the protection of depositors/investors. This approach closely follows the position of the European Banking Authority (EBA). Note that specific regulation on cryptocurrencies is not expected soon: both the Government and the Bank of Portugal have stated that they will not regulate cryptocurrencies and that the first step shall be taken by the European Commission. Despite the lack of regulation and supervision, the Bank of Portugal has indicated that the use of cryptocurrencies is not forbidden or an illegal act. Hence, this entity is so far more focused on a preventive and educational approach, by means of alerting to the risks of cryptocurrencies.

CMVM has also issued an alert to investors in November 2017 on ICO’s indicating that most ICO’s are not regulated – in which case investors are unprotected due to the high volatility/lack of funds, potential of fraud/money laundering, inadequate documentation (most ICO’s have no prospectus but only a White Paper) and risk of loss of the invested capital. Still, CMVM opened the door for them to be subject to regulation according to their specific circumstances. This approach closely follows ESMA alert issued on ICO’s on the same month and a statement of November 2017 which indicated that where coins or tokens qualify as financial instruments, then it is likely that the firms therein involved pursue regulated investment activities, such as placing, dealing in or advising on financial instruments or managing marketing collective investment schemes. Note that CMVM also advised investors interested in financial products related with virtual currency to ask for complete information on the products and specifically on the risks to the financial brokers.

Considering the above, the usual distinction between the different types of tokens (or rather the rights and obligations which their issuance and possession entail) underlying the transactions may prove useful. Should tokens be used mainly as a means of payment, the approach taken by the Bank of Portugal/EBA is the one to look at. Conversely, where tokens have more similarities to securities, and hence the approach of CMVM/ESMA is the one to take note of.

Despite some lack of regulatory clarity there are two main areas where there seems to be legal guidance.

The first one relates with money laundering, given that the recent proposal for amending the AML Directive (Directive 2015/849) extends its scope of application to virtual currencies, i.e., to exchange services between virtual currencies and fiat currencies, and to wallet providers offering custodial services of credentials necessary to access virtual currencies.

Notwithstanding the proposed amendment to the European AML framework, note that the Bank of Portugal clarified that financial institutions are under the obligation to control transfers of funds coming from and going to platforms of negotiation of cryptocurrencies under AML provisions. In this respect, it has been widely reported that one of the major banks in Portugal has recently blocked any transfers having these types of entities as beneficiaries.

The second one relates with tax: the Court of Justice of the European Union (“CJEU”) already addressed the question on whether transactions, such as the exchange of bitcoin or other cryptocurrency for traditional currency, and vice versa, in return for payment of a sum equal to the difference between, on the one hand, the price paid by the operator to purchase bitcoins and, on the other hand, the price at which he sells those same bitcoins to his clients, qualified as a supply of services for consideration for VAT purposes and, if so, whether such supply would be considered exempt from VAT.

The CJEU decided that the exchange of bitcoins for traditional currency qualifies as a supply of services for VAT purposes. As to the question on whether these transactions should be regarded as exempt supplies, the CJEU pointed out that bitcoin, being a contractual means of payment, cannot be regarded as a current account or a deposit account, a payment or a transfer. Moreover, unlike a debt, cheques and other negotiable instruments referred to in Article 135(1)(d) of the VAT Directive, bitcoin is a direct means of payment between the operators that accept it. Therefore, the CJEU ruled that transactions, such as exchange of cryptocurrency for traditional currency, and vice versa, should be exempt from VAT under the provision of article 135(1)(e) of the VAT Directive. As the question submitted to the Court concerned only the exchange of cryptocurrency for legal tender currency, the CJEU did not expressly addressed the subject of whether the exchange of, e.g., bitcoins for a different cryptocurrency should also be regarded for VAT purposes as an exempt supply of services under article 135(1)(e) of the VAT Directive. However, in our view, the same reasoning applies and the answer should therefore be the same.

CJEU’s judgements are directly effective in all Member-States and, therefore, the Tax Authorities in all Member-States must abide by them. With this judgement, bitcoin exchangers, start-ups and users finally know where they stand from a VAT perspective. Buying, selling, sending, receiving, accepting and spending bitcoin will not be taxed, which allows economic agents to deal with bitcoin as they would with legal tender currency or other types of money.

More recently, the Portuguese Tax Authority (“PTA") issued binding rulings under which it stated that any gains derived from bitcoin trading should not be considered income for Personal Income Tax (“PIT”) purposes to the extent such activity does not constitute a business or professional activity. Indeed, the PTA concluded that gains derived from the sale of bitcoin would not fall under the concept of capital gains or investment income as defined by the Portuguese PIT Code and, consequently, those gains are not covered by the taxable base of the Portuguese PIT.

United States Small Flag United States

The Commodity Futures Trading Commission (CFTC) has determined that, under the Commodity Exchange Act, a virtual currency (i.e., a cryptocurrency)is a “commodity” (which determination has been confirmed by federal court rulings). The CFTC’s broad authority extends to fraud or manipulation in derivatives markets and underlying spot markets. In addition, cryptocurrencies have been designated as currencies by the Financial Crimes Enforcement Network (FinCEN) for anti-money laundering purposes, and have also been determined to be securities by the Securities and Exchange Commission for purposes of regulating public offerings of cryptocurrencies.

At the federal level, anti-money laundering legislation requires cryptocurrency exchanges and other crypto-related business to register with the FinCEN and report annually for anti-money laundering compliance. Many states have enacted money transmitter licensing requirements that may apply to cryptocurrency exchanges. New York's Bitlicense applies specifically to transmission and exchanges of cryptocurrencies, whereas Illinois' money transmitter law excludes cryptocurrencies.

There is no legislation in the U.S. that specifically regulates the use of cryptocurrency or digital wallets. Access devices used in e-money transactions are regulated under the Electronic Funds Transfer Act (EFTA) and the Fed's related Reg E with respect to electronic funds transfer. The Truth in Lending Act, and Fed's related Reg Z apply to access devices used for lines of credit and loan applications. The Gramm Leach Bliley Act and Fed's Reg P regulate the treatment of non-public personal financial data.

The Bank Secrecy Act's anti-money laundering provisions, and the FinCEN registration and reporting requirements, apply to cryptocurrencies. The Fair Credit Billing Act (FCBA) and EFTA establish procedures for resolving mistakes on credit billing and electronic fund transfer account statements.

Each of the SEC and the CFTC has issued guidance regarding the operation of cryptocurrency exchanges and brokerages in the United States. Generally, engaging in any such activity will trigger a registration requirement.

In particular, the SEC has issued a Statement on Potentially Unlawful Online Platforms for Trading Digital Assets. The guidance suggests that a cryptocurrency exchange may be required to register as a “national securities exchange” under Section 6 of the Securities Exchange Act of 1934 (the “1934 Act”) or an “alternative trading system,” or “ATS,” under SEC Regulation ATS under the 1934 Act. An ATS is a trading system that meets the definition of “exchange” under federal securities laws but is not required to register as a national securities exchange if the ATS operates under the exemption provided under Exchange Act Rule 3a1-1(a). To operate under this exemption, an ATS must comply with the requirements set forth in Rules 300-303 of Regulation ATS.

UAE Small Flag UAE

UAE Onshore
Reference to cryptocurrencies is made under the 2017 Regulations. This framework includes two contradictory provisions with respect thereto: at one point it provides that cryptocurrencies are “prohibited” and at another that they are “unregulated”. However, the governor of the UAE central bank has since clarified that the 2017 Regulations do not “cover ‘virtual currency’”.

Additionally, (1) the SCA’s recent announcement with respect to initial coin offerings (please refer to question 15 below); and (2) the Dubai government’s introduction of plans to launch its own wallet emCash which can be used as a digital currency and cryptocurrency as well, suggests that certain cryptocurrencies are not (or will not be) prohibited.

If an entity wishes to provide financial services in the UAE and such services involve use of the UAE Dirham, it must be licensed or authorised by the UAE central bank. It is currently unclear whether the UAE central bank would be willing to provide licenses to private entities for activities specifically related to the use of cryptocurrencies, such as a crypto currency exchange. As stated above, such activities are not specifically addressed under the central bank’s regulation.

The DIFC has, on previous occasions, advised investors to treat the use of cryptocurrencies as high-risk investments. The DIFC has also, as mentioned above, launched the FinTech Hive, which encourages innovation in technology, including through the use of blockchain and blockchain tokens. DIFC regulations do not, at the time of writing, include express reference to cryptocurrencies.

Pursuant to its regulatory framework, the ADGM does not prohibit the use of crypto assets, however it has set out mandatory requirements and conditions applicable to such use.

The ADGM regulations include a license specifically provided to operators of crypto asset businesses. Additionally, it has issued a legal framework clearly defining the term “crypto asset” and listing the factors the FSRA would consider while determining which crypto assets are “accepted” for use in the ADGM, such as under crypto asset exchanges.

Ukraine Small Flag Ukraine

As of the date of the preparation of this material the legal regulation for cryptocurrencies on the level of law does not exist.

The use of cryptocurrencies is not prohibited. According to the mutual letter issued by the NBU and the National Financial Services Commission on 30.11.2017, cryptocurrencies cannot be considered as money, currency, electronic money and securities.

Ministry of Economy of Ukraine has recently announced the Concepts of the state policy in the field of virtual assets, where the main regulation initiatives on cryptocurrencies and smart-contracts are suggested to be adopted.

Switzerland Small Flag Switzerland

Cryptocurrencies are not prohibited under Swiss law. Their issuance does not require a license, but the issuer of a means of payment is subject to AML regulation and needs to be a member of an SRO (or submit to Finma supervision). Converting assets from fiat to crypto (or vice versa) and from one cryptocurrency to another is also subject to AML regulations.

India Small Flag India

Currently there is no clear definition for cryptocurrencies / virtual currencies in India and till recently, there was also no law which specifically regulates cryptocurrencies. For this reason, under the existing regulatory framework and judicial precedents, the classification of cryptocurrencies such as Bitcoin is likely to be ‘goods’ in the nature of software. The consequence of this is that any cross-border trade in the token is likely to be deemed as an import or an export of the good viz. in the nature of a software and attract applicable exchange control and Goods and Service Tax (GST) regulations.

Further, on April 6, 2018, RBI issued a circular titled “Prohibition on dealing in Virtual Currencies” (VC Circular). The VC Circular prohibited regulated financial institutions from “dealing with VCs or providing services for facilitating any person or entity in dealing with or settling VCs”. This has resulted in entities dealing in crypto-assets from being cut off from the Indian financial system. This circular has been challenged in the Supreme Court of India on the grounds of being unconstitutional. (Disclosure: Nishith Desai Associates is acting for some of the parties who have challenged the VC Circular in the Supreme Court).

United Kingdom Small Flag United Kingdom

Cryptocurrencies as such are not regulated in the UK at this point in time. The UK regulatory framework defines regulated activities broadly as specified activities that are carried on in the UK by way of business which relate to specified investments. The principal provisions regarding the regulated activities regime are contained in the following:

  • The Financial Services and Markets Act 2000 (‘FSMA’), which is the key statute governing financial regulation in the UK and contains in section 19 the general prohibition on unauthorised persons carrying on regulated activity in the UK unless they are an exempt person (by virtue of being an appointed representative of another authorised firm) or an exclusion is available.
  • The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (‘RAO’), which contains definitions of the regulated activities and exclusions.

Under FSMA it is an offence for a (legal or natural) person to carry on regulated activities in the UK unless it is authorised or an exemption applies. Violation carries criminal penalties and any agreements made in violation may be void.

The extent to which this framework applies to cryptocurrencies depends on whether these fall within the definition of a specified investment. This is generally determined on a case-by-case basis and depends heavily on the defining characteristics of the cryptocurrency and the nature of the proposed activity. Where the specified activity involves both cryptocurrency and a specified investment – as is often the case – this will bring the activity within the regulated sphere.

Examples of activities that would otherwise be regulated but are not when cryptocurrencies are used include payments and e-money activity. Cryptocurrencies will generally fall outside the scope of the Payment Services Regulations 2017 (implementing the second Payment Services Directive 2015/2366 (EU)) and the Electronic Money Regulations 2011 (the “EMRs”). This is because cryptocurrencies are not at this point considered by the Bank of England as “money” and therefore not cash. Similarly, most cryptocurrencies would not fall within the EMRs because e-money is defined as being issued on receipt of “funds” and represent a claim on the issuer, which would exclude many cryptocurrencies.

Examples of activities where cryptocurrencies do fall within scope of the regulated activity include cryptocurrency derivatives. These may be caught by the Markets in Financial Instruments Directive II (MiFID II), even though cryptocurrency is not considered to be currencies or commodities within scope of MiFID II. This is because cryptocurrency derivatives can be financial instruments within the meaning of MiFID II. The FCA have said that it is likely that dealing in, arranging transactions in, advising on or providing other services that amount to regulated activities, as these relate to derivatives with a cryptocurrency as the underlying instrument, will require authorisation by the FCA.

Whether or not cryptocurrencies are regulated by the principal financial regulations in the UK, they do fall within scope of the Fifth Anti-Money Laundering Directive ((EU) 2015/849) (“AMLD5”), which came into effect on 9 July 2018 and must be transposed by EU member states by 10 January 2020. Among other provisions, AMLD5 contains specific provisions aimed at bringing cryptocurrency exchange platforms and wallet providers within scope of regulation.

While cryptocurrencies are not currently regulated, the government and the regulators are monitoring their development and actively consulting on the appropriate response. In March 2018, the Chancellor of the Exchequer launched a Cryptoassets Taskforce (the “Taskforce”), consisting of HM Treasury, the FCA and the Bank of England. The Taskforce issued its final report in October 2018 (the “Report”). The Report considered the benefits of cryptoassets, such as their use as a means of exchange, use in investment or to support capital raising. The Report also considered the risks, including the risk of financial crime, risks to consumers who may lack sufficient understanding of cryptoassets, risks to market integrity and the potential implications for financial stability. Following on from the Report, the FCA will consult on the following points:

  • guidance for cryptoassets that are currently within the regulatory perimeter; and
  • a potential prohibition on the sale to retail consumers of derivatives referencing certain types of cryptoassets.

In addition, HM Treasury will consult on:

  • potential changes to the regulatory perimeter to bring within in cryptoassets that have features comparable to specified investments; and
  • the transposition of AMLD5.

Over the course of 2019, this work should lead to increased clarity around the status of cryptocurrencies and assets in the UK.

The Netherlands Small Flag The Netherlands

Currently, cryptocurrencies are not considered as fiat currencies and are therefore not subject to any regulatory requirements in the Netherlands. The Dutch legislature and the DNB have furthermore indicated that there are no plans to implement any relevant legislation in the near future. Obviously, the AFM and DNB closely monitor all new developments concerning cryptocurrencies and the associated risks for investors. To that end, the supervisors have issued several warnings regarding the risks of investing in cryptocurrencies.

Currently, fiat-to-cryptocurrency exchange platforms as well as custodian wallet providers are not subject to any anti-money laundering rules. As a result of the 5th Anti-Money Laundering Directive, which entered into force on 9 July 2018, these parties will be brought within the scope of the EU anti-money laundering rules. Member States will have to implement the 5th Anti-Money Laundering Directive ultimately by 10 January 2020.

China Small Flag China

Under PRC law, cryptocurrencies are not currencies and cannot be used to redeem for cash or cash equivalent. It is only treated as a goods with money value.

Taiwan Small Flag Taiwan

As this is a relatively niche market in Taiwan, there are no specific laws or regulations on cryptocurrencies thus far. According to the FSC's press releases, cryptocurrencies like Bitcoin are deemed as a type of "virtual commodities" unless they have any features that render them as “securities” as defined under the Taiwan Securities and Exchange Act ("SEA"). The definition of the term “securities” is relatively broad (thereby creating a certain level of ambiguity) under Taiwan law. Specifically, “securities” referred to under Article 6 of the SEA cover government bonds, corporate stocks, corporate bonds, and other securities approved by the competent authority, as well as stock warrant certificates, certificates of entitlement to new shares, and certificates of payment or documents of title representing any of the above securities. Given the above, whether cryptocurrencies should be deemed as securities under the SEA would be decided on a case-by-case basis.

Malaysia Small Flag Malaysia

The Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order which came into operation on the 15 of January 2019 defines cryptocurrency, or known in the order as ‘Digital Currency’, as “a digital representation of value which is recorded on a distributed ledger whether cryptographically-secured or otherwise, that functions as a medium of exchange and is interchangeable with any money, including through the crediting or debiting of an account.”

Under the Order, a Digital Currency is prescribed as securities for the purpose of securities law in the event that the currency is one which:
a) Is traded in a place or on a facility where offers to sell, purchase or change of, the digital currency are regularly made or accepted
b) A person expects a return in any form from the trading, conversion or redemption of the digital currency or the appreciation in the value of the digital currency, and
c) Is not issued or guaranteed by any government body or central banks as may be specified by the Commision

One of the key features of Cryptocurrencies are that they are not issued by the Central Bank of any country. This feature is exactly what makes a cryptocurrency such as Bitcoin not recognized as money in Malaysia (or “not legal tender” as the law puts it).

In Malaysia, what’s recognized as currency is controlled by the Central Bank of Malaysia Act 2009 (CBM 2009), and Part III of the Central Bank of Malaysia Act 1958 (CBM 1958). Under Section 20 of the CBM 1958, only Bank Negara Malaysia (The central bank) has the right to issue currency in Malaysia - any currencies issued by other people are illegal.

Section 20 of the Central Bank of Malaysia Act 1958
“The Bank shall have the sole right of issuing notes and coin throughout Malaysia and neither the Government nor the Government of any State nor any public authority, or banking institution or other financial institution, or other institution or persons shall issue currency notes, bank notes or coin or any documents or tokens payable to bearer on demand being documental tokens which, in the opinion of the Bank, are likely to pass as legal tender.”

“Legal tender” means money that’s accepted for payment in Malaysia under Section 24 of the CBM 1958. And since Section 18 defines the currency of Malaysia as the Ringgit, therefore all digital currencies are not recognized as legal money in Malaysia.

Cryptocurrencies like Bitcoin could still be recognized as a “foreign currency” under our CMB 2009. Section 2(1) defines a “foreign currency” as:

“...currency notes or coins which are legal tender in any country, territory or place outside Malaysia…”

It could be argued that since Japan recognizes Bitcoin as money, it could be considered a “foreign currency”. But this still doesn’t legalize Bitcoin, because all foreign currencies, whether the US Dollar, UK Pound, or Indian Rupee, are not “legal tender” in Malaysia. While we see currency exchange at banks and licensed money changers as part of everyday life, you won’t see someone trying to pay the grocer store in US Dollars - it’s not accepted as money in Malaysia. Even if the grocer stores accepts US Dollars, it’s a private arrangement between you and the store. In the end, the shop will still have to convert it into Ringgit to get their money’s worth.

Updated: February 26, 2019