The global crypto regulatory outlook in 2023
The crypto winter and the FTX saga have led to fast-paced crypto regulation efforts in 2023. Globally, regulators are under pressure from governmental bodies and crypto investors to create clear guidelines overseeing digital asset trades.
To protect consumers, several countries and regions have announced plans for new regulatory laws that will take place this year or at the start of 2024.
The global cryptocurrency regulation push
Lawmakers are pushing for a better regulatory structure in the crypto industry. They are working on a better stance to prevent money laundering, crypto scams, and consumer manipulation through fund mismanagement.
Overall, this year will be a time to remember in the history of crypto if watchdogs set basic regulation procedures for investors. Brace yourself as we get into the nitty-gritty of the global crypto regulatory outlook in 2023.
Japan is looking to attract crypto companies
Japan’s crypto regulation efforts have been among the earliest worldwide. Its body of law related to virtual currencies resulted from the nation’s agreement with the International Organization of Securities Commissions (IOSCO) in 2014. When China shut down some crypto exchanges in 2017, Japan became the new dynamic crypto center.
A series of failures of crypto exchanges due to hacks and money mismanagement saw Japan become one of the strictest crypto-related law enforcers to ensure consumer protection.
The country has placed high exchange demands, such as holding most customer assets in cold wallets and segregating exchange and customer assets. The move came in handy in the FTX case, whereby FTX’s Japan subsidiary customers will receive their funds back, while investors in other countries counted severe losses.
At this time, Japan is directing its campaign to attract more companies to set up in the company. They had relaxed their regulatory process since last December when they approved companies to issue tokens without heavy taxes that initially led them to flee.
As the year goes on, lawmakers in the country are expected to keep on with discussions to make decentralized autonomous organizations (DAO) legal, which could take place by the end of June 2023. In addition, there will be moves deliberated toward forming a formal legal structure to provide limited liability to crypto project members and provide tax clarity in crypto.
Singapore has been known to be very conservative and always making moves to ensure consumer protection. However, it still wants to establish itself as a modern fintech hub.
After the fall of companies based in the nation, like 3AC and Terraform Labs, regulators started looking into providing more regulatory output. So far, the Monetary Authority of Singapore(MAS) has given key consultations closed before the year ended, entailing stablecoins and consumer harm.
Some industry insiders predict it will make the legislative changes towards the end of this year or in 2024. One of the major concerns is whether MAS will address some of the public’s concerns. MAS is considering risk disclosure requirements regarding staking and lending but leaning towards complete prohibition.
As Nizam Ismail, CEO of Ethikom Consultancy and chairman of the regulatory and compliance sub-committee for the Blockchain Association of Singapore, put it, Singapore-based firms will be disadvantaged if there is a plan to curtail the offering of these features.
The proposal also touches on decentralized finance(DeFi). It initiates a restriction on what you can do with DeFi by a considerable margin, as Rahul Advani, policy director, APAC at Ripple, said. Another concern is the expectation that service providers get the same technological risk requirements as traditional banks.
Advani said that the move would have a huge hit on fintech. He adds that crypto companies usually rely on other service providers. Hence, they may get to a different level of service-level agreements than MAS expects.
So far, there needs to be clarity on what MAS will do about stablecoins. However, the MAS regulations could only apply to registered and licensed firms. The stance could also help unregulated and unlicensed service providers draw the general public into digital asset trades.
The G-20 presidency and India
India has had a similar stance on crypto tax rules since 2022, and they are enforcing them even more in 2023. There is a proposed jail time or fine for non-compliance with tax provisions.
Meanwhile, the Indian central bank has not decided that cryptos should be prohibited.
The government opposition is publicly calling for stiff taxes. However, privately, they are tasked with protecting India’s investors. There needs to be more clarity on India’s legal stance on crypto, which is why the G-20 presidency is pushing India to be transparent in its position on crypto.
In two events, the leaders put this in the spotlight. The first involved more than ten officials from 10 emerging-market economies in New Delhi. During the period, they called crypto assets “risky and not worth it.”
The second was at the National Institute of Public Finance and Policy (NIPFP), an autonomous research institute based in New Delhi, which brought policymakers and industry players under one roof. The main agenda was to get more understanding to the government on crypto.
Notably, the G-20 presidency has given India the power to establish a crypto agenda for the intergovernmental forum.
Hong Kong’s incoming VASP regime
Hong Kong was once home to some of the biggest crypto businesses, such as Bitmex and FTX.
However, over time, the region lost this title as firms got scared when the SEC began stern examinations of token listings. In addition, the China ban on crypto, the zero-covid policy, and long hotel quarantines further drove crypto companies away.
The city regulators have seen an outflow of talents and forms and are pushing to change the ongoing. Hence, they said that the city was open to crypto firms and that they would tone down on its regulations.
The incoming VASP regime currently means that only exchanges with licenses would be allowed to operate in the city. In addition, they would not serve retail investors. The move was set to be effective in March 2023, but they changed the dates to June 2023. Nonetheless, license applicants have been given a grace period.
Julia Leung, Hong Kong’s Securities and Futures Commission (SFC) Chief Executive Officer, mentioned on Jan 11 that the regulator was making a list of tokens retail investors would invest. She added that the initial list would be quite limited as the SFC first wants to stick with offerings they deem ‘safe.’
The main expectation for the year is stablecoin regulation, whereby the Hong Kong Monetary Authority publicized its discussion paper on only allowing companies with licenses to issue stablecoins and cross-border payments.
Furthermore, there are expectations regarding security token offerings and virtual assets, as crypto.news reported.
EU MiCA regulations
MiCA, for Markets in Crypto-assets, is a cross-border regulatory framework for offering and providing crypto-related services. It provides a standard regulatory guideline for members of the European Union.
The framework encompasses transparency and disclosure requirements for offering crypto assets on a trading platform. It also outlines authorization requirements for crypto asset service providers, electronic money token issuers, and asset-referenced token issuers.
In addition, it governs the use and organization of crypto-asset service providers and issuers. MiCA also outlines the measures to prevent market manipulations and unlawful disclosure of insider information.
After MiCA passes, as its voting is set for June this year amid technical issues, crypto companies will have 18 months to make the necessary changes and adapt. Reports show that there needs to be more clarity between what crypto services are doing and what they will do under MiCA, advising that companies should begin getting ready now.
MiCA will make European crypto services life easier as it is a more defined approach towards crypto.
However, some experts are already stating that MiCA needs to be more comprehensive and that regulators must go further. In addition, it remains a concern that even with the law implementation, it will not work until other countries follow suit.
U.S. cracking down on crypto entities
The U.S. government is eagerly cracking down on crypto after making a statement, though not so mega, with a little-known crypto exchange named Bitzlato. The U.S. Department of Justice made an announcement earlier on an “International Cryptocurrency Enforcement Action.”
The announcement led to panic among investors on Twitter, wondering which big player was being brought down. However, the “alarm” did not touch on Celcius, BlockFi, or any bankrupt crypto lender that misappropriated customer funds. It was the small, Hong-Kong-based, Russian-owned crypto exchange Bitzlato.
Based on the announcement, the U.S. government said they were scrutinizing players in the industry, even more so after the FTX collapse. They added that they were aware of crypto crime and taking the necessary measures to combat it.
Notably, the SEC charged Genesis and Gemini for securities law violations around the same period. SEC Commissioner Hester Peirce has noted that regulatory frameworks may be coming up. Hence, crypto enthusiasts should be on the lookout as they may be established in the context of enforcement action.
The FTX bankruptcy and its founder’s arrest have greatly impacted the crypto industry, as crypto.news reported. Similarly, lawmakers are now, more than ever, calling for stricter regulation measures.
Earlier, a fire had been lit last year asking agencies to take action against digital assets. Over the summer of 2022, Senators Cynthia Lummis and Kirsten Gillibrand introduced the bipartisan crypto bill to increase oversight on crypto energy usage and stablecoins.
Elizabeth Warren is now among those calling for a stronger SEC as the FTX case continues and the crypto space faces a period of regulatory uncertainties.
What’s next in 2023?
This year, we expect to see a lot of regulation measures put in place globally as more lawmakers push for the regulators to implement more precise guidelines.
As different regulatory bodies work to maintain order in the crypto industry and to keep consumers safe, there could be more crackdowns across several countries.
Meanwhile, even if watchdogs take time before implementing new laws, it is worth noting that the industry’s young nature breeds regulatory uncertainty.