7 months ago

    Crypto score card for selected jurisdictions

    Table of contents

      Research Methodology 

      The research methodology used in this work is the doctrinal style of research. It captures and theories digital asset regulation by considering its use in various countries using primary sources such as statutes. The research also adopts various secondary sources, such as textbooks, articles, legal journals, and periodicals, to further elaborate and expand on the findings of the research. The research also makes use of an analytical method of research. It adopts the analytical method to analyse the provisions of various digital asset regulations developed to regulate and protect consumers. The analytical method is used to extract information on digital asset regulation around the world and how countries respond to challenges. 

      Scoring Methodology 

      Due to the unique nature of digital assets and the different treatments it has received in various jurisdictions, countries are scored on their friendliness to digital assets, the adequacy of the laws enacted to particularly regulate crypto, the applicability of their existing laws to digital assets, their willingness to regulate crypto in their jurisdiction, or their general ban or limitations on the use of digital assets. 

      Digital assets comprise many dimensions, and because of their unique characteristics, potentials, and negative impacts, countries have developed unique approaches to regulating digital assets. Countries are scored based on

      • Legal Status and Environment
      • Regulatory Framework
      • Market Surveillance and Anti-Market Manipulation
      • Registration Requirements
      • AML/CFT
      • Travel Rule Compliance
      • Stable-coin Regulation

      Bahamas – 19 points

      Legal Status & Environment (Score: 4)

      Legally speaking, the government does not recognize cryptocurrencies or other digital assets as legal money. The Central Bank does not also recognize the word “cryptocurrency”; instead, it uses “digital assets” because it assumes that the word “token” sets payment tokens apart from fiat money or legal tender.

      However, there is no legal restriction on Bahamian citizens purchasing digital assets. The Government of the Bahamas intends to improve the Bahamas’ attractiveness as a well-regulated jurisdiction where well-run digital asset businesses of any size can operate, grow, and prosper in its policy white paper titled “The Future of Digital Assets in The Bahamas,” published in April 2022. 

      Regulatory Framework (Score: 5)

      In 2020, the Bahamas became one of the first nations to establish a legislative framework for digital assets after passing the Digital Assets and Registered Exchanges Act, which was published by the Securities Commission of The Bahamas in 2019.

      This legislation outlines rules for the production and sale of digital tokens, as well as for the conduct of individuals who issue tokens and those who offer intermediate services related to token issuance.

      Market Surveillance and Anti-Market Manipulation (Score: 0)

      There are currently no market surveillance requirements or anti-market manipulation rules for digital assets.

      Registration Requirements (Score: 5)

      The Digital Assets and Registered Exchanges Act lays the groundwork for their regulation by defining specific categories of “crypto” enterprises (such as custodians and wallet services) and setting forth a framework for token issuances as well as for the registration and oversight of crypto exchanges. The legal requirements for cryptocurrency exchanges apply to both centralized and decentralized exchanges, as well as crypto-to-crypto and fiat-to-crypto exchanges.

      AML/CFT (Score: 5)

      Various laws have been amended and adopted to help digital asset businesses understand their AML/CFT/CPF duties and to make clear how AML/CFT/CPF requirements relate specifically to digital asset activities and registered DABs. 

      Following amendments to the Proceeds of Crime Act, the Anti-terrorism Act, and the Financial Transactions and Reporting Act, digital asset businesses (DABs) were mandated to comply with these regulations as they relate to AML/CFT.

      The Digital Assets and Registered Exchanges (Anti-Money Laundering, Countering the Financing of Terrorism, and Countering the Financing of Proliferation) Rules, 2022, mandate DABs to comply with the updated recommendations set out in the FATF Guidance on Virtual Assets and Virtual Asset Service Providers (“FATF 15”). Also, the Commission for the Financial and Corporate Service Providers (Anti-Money Laundering and Countering the Financing of Terrorism) Rules, 2019

      Travel Rule Compliance (Score: 5)

      DABs must abide by the FATF’s Recommendation 16, and its application to Virtual Asset Service Providers (VASPs) is mentioned in the Travel Rule.

      The Financial Transactions Reporting (Wire Transfers) Regulations, 2018, and the Financial Transactions Reporting (Wire Transfers) Amendment Regulations, 2022, apply to them, therefore they must abide by them. This subject is expressly covered in Regulation 3A of the Amendment Regulations.

      The Financial Transactions Reporting Regulations were modified in 2021 to take the “travel rule” into account (financial institutions and businesses dealing in digital assets must comply, i.e., validate the transaction’s originator and beneficiary for transactions above $1,000).

       Stable Coin Regulation (Score: 3)

      The Commission published planned changes to DARE and the Rules in September 2022, among other things to satisfy the demand for a supervisory framework for derivatives of crypto assets and the requirement for increased stable coin transparency.

      Recommendation: The attitude of the Bahamas towards regulating digital assets has been really impressive. However, because of the threats digital assets are prone to in market manipulation, it is important that the Bahamas enact a law specifically regulating digital assets to prevent market manipulation. Also, the proposed amendments to DARE should be implemented to create a stable-coin regulation.


      Ireland – 27 points

      Legal Status & Environment (Score: 4)

      The Central Bank of Ireland, which has the authority for the regulation of financial services in Ireland, has not set forth any specific financial regulatory framework for cryptocurrencies in Ireland and does not regard them as money or their equivalent.

      The Central Bank issued a warning to consumers in February 2018 on the dangers of purchasing or investing in “virtual currencies” and cryptocurrencies, citing dangers such as severe price volatility and a lack of regulation. The Central Bank revised the warning in 2021 and stated that even though some virtual currency exchanges and custodian wallet providers have implemented new anti-money laundering (AML) and countering the financing of terrorism (CFT) supervisory regimes, this does not change the fact that virtual currencies are not currently regulated and consumers remain exposed to the risks highlighted in the 2018 warning.

      In 2018, Gerry Cross, Director of Financial Regulation—Policy and Risk at the Central Bank, indicated that: “The Digital Finance Package includes a proposal for a regulation on markets in crypto-assets (MiCA), in addition to a proposal for a regulation on digital operational resilience for the financial sector, a proposal on a pilot regime for market infrastructures based on DLT, and a proposal to clarify or amend certain related financial services rules.” MiCA will replace existing national frameworks applicable to crypto assets not covered by existing EU financial services legislation. “It will establish uniform rules for crypto-asset service providers and issuers at the EU level, provide measures ensuring consumer and investor protection, and include safeguards to address potential risks to financial stability.”

      Regulatory Framework (Score: 3)

      The Central Bank of Ireland has yet to issue any specific financial regulatory framework for cryptocurrencies in Ireland.

      The Central Bank of Ireland continues to issue warnings about investment in crypto-assets and is very hesitant in implementing its regulations or voicing its opinion from a legal and regulatory perspective.

      Ireland continues to rely on regulations and directives from the European Union in regulating crypto asset activities, such as the Markets in Financial Instruments Directive 2014/65/EU (MiFID), the Electronic Money Directive 2009/110/EU (E-Money Directive), and the Payment Services Directive 2015/2366/EU (PSD2), and by various EU regulations, such as the Prospectus Regulation 2017/1129/EU, the Market Abuse Regulation 506/2014/EU, and the Central Securities Depositories Regulation 909/2014 (EU), which have direct effect in Ireland,

      Market Surveillance and Anti-Market Manipulation (Score: 2)

      Ireland has implemented the Market Abuse Regulation (EU 596/2014, or “MAR”), and the Market Abuse Directive on criminal sanctions for market abuse (Directive 2014/57/EU, or “CSMAD” or “MAD Il”) became applicable in Ireland and across the European Union on July 3, 2016.

      Although it is unclear if this law applies to crypto assets, it states that “The new Market Abuse Regime fortifies the legal foundation supporting the role of identifying, penalizing, and discouraging market abuse.” “It broadens its application to encompass a wider array of financial instruments as well as new markets, new trading platforms, and new behavioral trends.”

      Ireland will also rely on MiCA, as it also introduces new rules that prohibit market abuse related to any type of crypto-asset transaction or service, including unlawful disclosure of inside information, insider trading, and actions that are likely to lead to disruption or manipulation of crypto-assets.

      Registration Requirements (Score: 4)

      Cryptocurrency companies intending to operate in Ireland are required to register with the Central Bank of Ireland. The sole purpose of registration is to comply with the AML/CFT rules. 

      Furthermore, it will depend on a case-by-case consideration of the activities to be conducted and the nature of the crypto-asset itself whether a person needs the authorization to undertake their operations involving crypto-assets in Ireland, such as sales regulation, money transmission laws, and anti-money laundering requirements. It will also involve a case-by-case study of the numerous securities laws in Ireland arising under both EU and domestic legislation.

      AML/CFT (Score: 5)

      On April 23, 2021, the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021 came into force in Ireland (the Irish Act).  It extends AML/CFT requirements to cover certain virtual currency exchanges and custodian wallet providers.

      Travel Rule Compliance (Score: 5)

      According to Financial Action Task Force Recommendation #16 (also referred to as the “Travel Rule for Crypto”), all cryptocurrency companies are required to screen, record, and communicate the information of the sender and recipient for transactions involving cryptocurrency that are worth more than $1,000 or a specific amount set by FATF member states. 

      AMLD5 was created as a result of the amendment to AMLD4. AMLD5 includes the recommendations of FATF #16 (the travel rule). 

      On April 23, 2021, the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021 (the Irish Act) came into force in Ireland to take account of the FATF recommendations in addition to AMLD5.

      Stablecoin Regulation (Score: 4) 

      The regulation of stablecoins in Ireland depends on their features. Stablecoins can fall within one or more regulatory categories in Ireland, including:

      Stablecoins as Virtual Assets: Any person or organization with a physical address in Ireland who plans to issue, trade, or offer other services related to stablecoins may need to register as a virtual asset service provider with the Central Bank.

      Stablecoins as e-money: An issuer of a fiat-collateralized stablecoin might need an e-money institution authorization if the stablecoin satisfies all of the requirements for electronic money as stated in the European Communities (Electronic Money) Regulations 2011 definition of e-money. 

      Stablecoins as financial instruments: If it falls within the definition of “financial instrument” as defined by the European Union (Markets in Financial Instruments) Regulation 2017 (often known as the “MiFID Regulations”), it will require a MiFID Regulations authorization.

      Asset-collateralized stablecoins under MICA: The regulation of asset-collateralized stablecoins under MICA will be effectively known when its final draft is implemented, which will be transposed into Irish law since it is not a directive. 

      Recommendation: Due to the nature of laws in the EU, Ireland is in a unique position where they can rely on regulations from the EU and enact directives into their laws to accommodate digital assets. MICA so far, when enacted, will be the most comprehensive cryptographic regulation, and the establishment of AMLD6, AMLAR, and AMLR also puts Ireland in a unique position. These notwithstanding, relying on regional regulations can halt innovative laws within Ireland. Therefore, Ireland should enact regulations that cover loopholes in digital assets.


      Pakistan – 5 points

      Legal Status & Environment (Score: 3)

      The State Bank of Pakistan (SBP) has not yet recognized cryptocurrency as a legal tender in the country. However, cryptocurrency trading is not illegal in Pakistan, and people are free to buy and sell cryptocurrency. 

      The SBP issued a circular in April 2018 advising all banks and financial institutions to stop handling cryptocurrency transactions. Subsequently, SBP’s clarified that Pakistan has not banned cryptocurrencies but softened its stance from the statement it issued in 2018 urging banks and payment processors to abstain from any involvement in cryptocurrencies.

      Currently, the State Bank of Pakistan (SBP) and the federal government are reportedly weighing a ban on all cryptocurrency transactions in the country. The Sindh High Court has been hearing a case about digital currencies and was urged by the SBP to make a move to ban cryptocurrencies and levy fines against crypto exchanges.

      Regulatory Framework (Score: 0)

      On November 6, 2020, Pakistan’s Securities and Exchange Commission (SECP) released a paper outlining potential approaches for regulating cryptocurrency in their country.

      The federal government was told by the SHC to devise cryptographic regulations by January 20. In October 2021, the government directed officials to form a committee headed by the federal secretary of finance and submit a report concerning the currency’s legal status, which was submitted to the high court on Wednesday, January 12, indicating that cryptocurrency was illegal and could not be used for trade.

      Currently, cryptocurrencies are not recognized in Pakistan; therefore, there are no laws to regulate them.

      Three committees have been established by the Pakistani government to determine whether to legalize cryptocurrencies or outright outlaw them. The committees will examine every aspect of the cryptocurrency industry and make suggestions for the nation’s crypto policy.

      Market Surveillance and Anti-Market Manipulation (Score: 0)

      There are currently no market surveillance or anti-market manipulation rules for digital assets in Pakistan.

      Registration Requirements (Score: 0)

      Since the primary regulator in Pakistan hasn’t enacted any laws regulating cryptocurrencies or providing cryptocurrency service provider registrations, these companies in Pakistan continue to operate through the back door.

      AML/CTF (Score: 1) 

      On October 21, 2022, Pakistan was removed from the FATF grey list after it was decided by consensus that Pakistan had completed all substantial, technical, and procedural requirements of both the 2018 and 2021 action plans. Although Pakistan has the Anti-Money Laundering Act of 2010 and is a member of the Asia-Pacific Group on Money Laundering (APG), it also has the National Accountability Ordinance of 1999.

      However, there are still no specific AML/CTF regulations applied to the cryptocurrency industry, and there are uncertainties if the traditional AML/CTF laws apply, which is very unlikely since the government does not have any registration requirements and is taking steps to ban cryptocurrencies.

      Travel Rule Compliance (Score: 1)

      Pakistan was on October 21st, 2022 taken off the FATF grey list.   However, the applicability of its AML/CTF laws to crypto asset service providers remains unclear since they continue to operate through the back door in Pakistan.

      Stablecoin Regulation (Score: 0)

      There are currently no regulations for stablecoins in Pakistan. 

      Recommendation: While Pakistan allows for the buying, selling, and trading of cryptocurrencies, there is no regulatory framework for them. It poses risks and denies customers those assurances about participating in cryptocurrencies. It is recommended that the government of Pakistan take a stance on crypto and either ban it as it has contemplated or create regulations for AML/CFT, registration requirements, stablecoin regulation, travel rule compliance, market surveillance, and anti-market manipulation.


      Indonesia – 20 points

      Legal Status & Environment (Score: 4)

      The Ministry of Trade Regulation No. 99 of 2018 was legally approved and ruled that trading in crypto assets was legal. However, the country categorises bitcoin assets as commodities, placing them in the same category as items like gold or cereals.

      The country’s legislation states that only legally recognised crypto assets for investment are permitted for acquisition and sale in Indonesia. Cryptocurrencies are not a legitimate form of payment, the central bank recently emphasised. It is illegal for banks to make it easier for people to use cryptocurrencies as payment methods.

      It is clear from the requirement of Rupiah usage under the Currency Law that neither crypto assets nor cryptocurrencies can be utilised as payment methods in Indonesia because they are not recognised as the nation’s official currency.

      Regulatory Framework (Score: 3)

      Regulation No. 5 of 2019 was released by the Indonesian Commodity Futures Trading Supervisory Authority, or Bappebti, to create a comprehensive legal framework for the future of crypto assets.

      In Indonesia, crypto assets are regulated under the following regulations: Ministry of Trade Regulation No. 99 of 2018 on General Policy for Future Trading of Crypto Assets (“MoT Regulation 99/2018”), Commodity Futures Trading Supervisory Agency (Badan Pengawas Perdagangan Berjangka Komoditi or “BAPPEBTI”) Regulation No. 5 of 2019 on Technical Provisions on the Implementation of Physical Market Trading of Crypto Assets in Futures Exchanges, and lastly amended by BAPPEBTI Regulation No. 8 of 2021 on Guidelines of the Implementation of Physical Market Trading of Crypto Assets on Futures Exchanges (“BAPPEBTI Regulation 8/2021)

      A new law in Indonesia transfers cryptocurrency regulatory authority from commodities watchdog CoFTRA to the Financial Services Authority (OJK), signalling a change in the nation’s approach to monitoring the sector and an admission that there is more to it than asset trading. The measure, which Indonesian President Joko Widodo signed on January 12, overhauled financial regulations by updating at least 17 antiquated local laws to reflect modern technology. Under the new law, crypto assets will no longer be regulated and supervised under the CFTRA. Instead, the role will fall into the hands of the OJK.

      Market Surveillance and Anti-Market Manipulation (Score: 0)

      There are currently no market surveillance or anti-market manipulation rules for digital assets in Pakistan.

      Registration Requirements (Score: 3)

      Since Indonesia presently lacks a crypto-asset future exchange, the Bappebti registration is temporarily closed. Crypto-asset trading, on the other hand, is expressly regulated to be available to all international investors. An investor must meet the following requirements to become a Bappebti-certified crypto-asset physical trader: have at least IDR 50 billion in paid-up capital; retain a minimum of IDR 40 billion in equity; have acquired a PSE accreditation (Electronic System Provider, or Penyelenggara Sistem Elektronik) from the Ministry of Communication and IT for their system; have a business strategy in place for the next 24 months, as well as financial projections; Bappebti’s system requirements must be met.

      AML/CFT (Score: 5)

      The main regulator of AML compliance in Indonesia is PPATK (Pusat Pelaporan dan Analisis Transaksi Keuangan; Financial Transaction Reports and Analysis Center). The Bank of Indonesia, the Financial Services Authority, and OJK (Otoritas) Jasa Keunangan also play a considerable role in AML compliance in Indonesia.

      The country requires that “cryptocurrencies have to comply with risk assessment, anti-money laundering (AML), and combating the financing of terrorism (CFT) requirements.”

      Travel Rule Compliance (Score: 5)

      With Indonesia green-lighting the Personal Data Protection Bill, crypto exchanges and custodians offering services to its citizens, be it within the country or abroad, must obtain explicit consent before collecting, storing, and processing user data for FATF Travel Rule purposes.

      The deadline for Indonesia to bring cryptocurrency companies into AML/CTF compliance is August 2020. The Southeast Asian nation set April 20, 2022, as the adoption date for the Travel Rule. The nation has been preparing for full FATF membership for some years. All cryptocurrency transactions will be subject to the rule in a restricted sense (sender and recipient names and wallet addresses), but transactions with an Indonesian Rupiah value higher than or equal to $1,000 will also be subject to extra know-your-customer (KYC) checks, which may also include addresses and dates of birth.

      Stablecoin regulation (score: 0)

      There are currently no regulations for stablecoins in Indonesia. 

      Recommendation: Indonesia’s attitude towards digital assets has been conflicting. While they maintain a high AML/CFT and travel rule compliance rate, some aspects of their regulations need to be worked on, such as stable coin regulations and market surveillance, and anti-market manipulation needs to be created to fit into digital assets. Also, the regulatory framework and registration requirements should be comprehensive, clear, and certain to create transparency.

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