Cryptocurrency regulation continues to evolve as the world is learning how to govern this ‘asset’. Recent months have seen significant developments in regulatory frameworks and enforcement actions, recognising the importance of crypto regulation in safeguarding consumers and maintaining financial stability. Due to the lack of secure regulatory framework and growing popularity of crypto around the world, scams are on the rise.
The crypto landscape is a dynamic and ever-evolving space. At WRS, we believe it is essential to stay informed about the latest developments and trends shaping the industry. Whether it's the rise of NFTs, regulatory challenges or DeFi innovations, the crypto world offers a multitude of opportunities and challenges for anyone wanting to invest but falling victim to crypto related scams. Their road to recovery is often met with many obstacles due to the lack of regulation and lack of systems in place to help recovery their assets.
There is due to be a huge shift in 2024 globally that will hopefully open the doors to help the millions of people still looking to recover lost cryptocurrency.
UK: July regulations
Around February 2023, HM Treasury put out a consultation entitled “Future financial services regulatory regime for cryptoassets” with the aim of collecting ideas as to how the UK can best regulate crypto. More recently, the Economic Secretary announced that regulation for stablecoins, operating an exchange, taking custody of cryptoassets and staking activity were expected to land in July of this year. The stated aim of the legislation is to cement the UK as a global hub for crypto. The regulations will be the first of their kind in the UK.
The government’s plans are in line with those regulations being introduced in Europe and the US, with a greater burden being placed on the FCA and the introduction of the National Fraud Intelligence Bureau (replacing Action Fraud).
Under the proposed new regulations, various crypto asset activities, including exchanges will be regulated for the first time in the UK. The government's phased approach prioritises legislation for fiat backed stablecoins, with other areas to follow. Despite efforts to create a crypto-friendly environment, the UK industry faces challenges, including delays and poor feedback from the FCA due to the complications surrounding collective investment schemes.
Following this, starting April 26th 2024, authorities in the UK have the power to directly seize crypto assets from exchanges and custodian wallet providers suspected of being linked to illicit activities, without extensive legal procedures. This is due to amendments made to the Economic Crime and Corporate Transparency Act 2023, which expands the National Crime Agency’s authority.
In terms of recovering cryptocurrency, this is a great step forward to helping victims who have lost money through fraudulent schemes in the future. The Economic Crime and Corporate Transparency Bill, set to be enacted later this year will give local courts and law enforcement agencies new powers to help freeze crypto they believe was used to commit cybercrime. Powers under the bill will also let crypto linked to crime be seized irrespective of whether a person is convicted of criminal offences in ongoing investigations or proceedings.
The hope is that these new powers given to the UK authorities are expanded upon even further. This, in hand with the new legislations due to arrive in July, reflects how the UK is moving forward and should, soon, make recovering crypto much easier, helping those who fall victim to crypto scams.
United States: SEC’s Enforcement Action
In the United States, the Securities and Exchange Commission (‘SEC’) has enhanced enforcement efforts against entities violating securities laws in the crypto space. The SEC has targeted unregistered initial coin offerings (‘ICOs’), fraudulent token sales, and the offering of unregistered securities. These enforcement actions highlight the need for compliance and the potential legal risks associated with token offerings.
Furthermore, regulatory clarity remains a focus in the U.S, with ongoing debates surrounding the classification of cryptocurrencies and regulatory oversight. Recent discussions have centred on the classification of digital assets as securities or currencies, as well as the need for comprehensive regulations to address the unique characteristics of crypto assets.
European Union: MiCA and AMLD5
In the European Union , the proposed Markets in Crypto-Assets (MiCA) regulation aims to establish a framework for crypto asset markets across the EU. MiCA seeks to provide legal clarity for issuers and service providers, enhance consumer protection, and mitigate risks related to market integrity and financial stability. The regulation covers a wide range of crypto assets and has been widely well-received.
Additionally, EU members have been implementing the Fifth Anti-Money Laundering Directive (AMLD5), which requires crypto service providers to comply with anti-money laundering and KYC requirements. These regulatory measures aim to combat money laundering, terrorist financing, and other illicit activities facilitated by cryptocurrencies, while also promoting transparency and accountability in the crypto sector.
Asia
In the Asia-Pacific region, several countries have proposed regulatory measures to address the popularity of cryptocurrencies and mitigate risks. One example is that China has put its focus on crypto mining and trading activities, citing concerns over financial stability, energy consumption, and regulatory compliance.
Japan and South Korea have implemented licensing requirements for crypto exchanges and service providers, aimed at enhancing consumer protection and regulatory oversight. These measures reflect a broader trend of regulatory convergence and cooperation among Asian regulators to address common challenges and promote responsible innovation in the crypto industry.
Financial Action Task Force
The Financial Action Task Force continues to develop guidance on anti-money laundering and counter terrorist financing AML measures. The FATF's recommendations aim to establish a consistent regulatory framework for crypto-related activities worldwide, creating greater transparency and compliance with AML standards.
Moreover, international organisations, such as the International Organization of Securities Commissions (IOSCO) and the Basel Committee on Banking Supervision, have been actively engaging with stakeholders to assess the regulatory implications of crypto assets and explore potential policy responses to emerging challenges.
Looking forward
As the crypto industry progresses and more regulations come into play, compliance remains a fundamental consideration for everyone. There is global unclarity and the need for greater consistency in the regulation and oversight of crypto assets activities has never been greater, especially given the cross-border nature of the area, which creates significant risk for legitimate investors and those at risk due to being victims of fraudulent schemes. Adoption of crypto around the world is only set to increase, so looking forward, it will be interesting to see what further changes are made.