Crypto Regulations in the U.S. and Asia: Inception, Current and Future Regulations

Hashkey held a webinar Wednesday where they talked about all things cryptocurrency regulations in the U.S. and Asia, including stablecoins, government-issued digital currency and the future of cryptocurrency regulations in these jurisdictions.

Hashkey’s own Michael Chen, senior director, moderated the crypto discussion between Hashkey’s head of legal, Anna Liu, and Flexa’s legal advisor Michelle Gitlitz.

HashKey Group is a digital asset financial services group serving Asia, who also happened to receive approval-in-principle from the Securities and Futures Commission (SFC) of Hong Kong for its application to operate a virtual asset trading platform in April of this year. They are still waiting for final approval. Flexa is an open network for enabling instant cryptocurrency payments in stores and online.

The United States

Gitlitz calls the U.S.’ regulatory framework on cryptocurrency “our alphabet soup of regulators.” In other words, there are a plethora of different federal and state cryptocurrencies regulators.

First, she started at the federal level and named the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Comptroller of the Currency (OCC), Financial Times Enforcement Network (FinCEN), the Internal Revenue Service (IRS), Consumer Fraud Protection Bureau (CFPB) and the Federal Trade Commission (FTC) as all having parts in regulatory some aspect of digital assets.

She then briefly touched on different states and how they are able to create their own laws to further regulate crypto. For example, New York is looking to ban proof-of-work crypto mining for environmental reasons.

Gitlitz also explained that the definition test on whether or not to label cryptocurrency security is a 1946 test called the Howey test. It states that if there is an "investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others." At the moment, there are only two cryptocurrencies that do not fall under the “securities” definition: Bitcoin and Ethereum.

Gitlitz noted that there have not been too many recent laws tightening or loosening regulations on crypto, but said there is more compliance in the industry on current regulations. However, she expects that there will be more regulations coming down to honor President Biden’s March 9 executive order calling a “whole-of-government” strategy to protect consumers.

Furthermore, Gitlitz briefly mentioned that the Feds are interested in a government-backed digital dollar. In fact, Federal Reserve Vice Chair, Lael Brainard, is set to testify Thursday at noon that the government-backed dollar can coexist with the private sector’s stablecoins.

Gitlitz concluded her conversation on regulations by predicting that the Feds will not give consumers a cohesive piece of legislation anytime soon.

Asia: Hong Kong, Singapore, China

Liu led the way in a regulatory talk in Asia, covering Hong Kong and Singapore extensively, while also touching on China Mainland’s guidelines.

Liu started off her conversation on crypto by acknowledging that the majority of Asian nations recognize the benefits of wide-range crypto adoption. Most governments are concerned with crypto being used for money laundering and financing terrorism, but haven’t come up with a clear framework to use the benefits of crypto, while also mitigating its potential use with illicit activities. Furthermore, she noted that given Asia’s vast diversity and crypto landscape she wanted to focus on primarily Hong Kong and Singapore.

Hong Kong

Hong Kong’s regulatory framework is twofold, featuring the Hong Kong Monetary Authority (HKMA) and the SFC. The HKMA is responsible for determining whether a digital asset can be used as money and the regulations on stablecoins. The SFC regulates securities and futures contracts and also oversees protecting investor rights and interests.

As it stands, Hong Kong regulates entities conducting activities in the crypto space where cryptocurrencies are either defined as “securities” or “futures contracts,” as defined in Hong Kong’s Securities and Futures Ordinance (SFO). Companies conducting regulating activities must have a license to do so. However, the vast majority of cryptocurrencies are not securities, according to the SFO, thus Hong Kong is not regulating the majority of cryptocurrencies at the moment. 

In order to provide some sort of regulatory framework, the SFC has imposed regulatory requirements on fund managers and managers of portfolios which invest in cryptocurrencies that are and aren’t securities. Similar rules apply to distributors of crypto funds.

In the future, Liu postulates that Hong Kong’s crypto regulations will be more robust and suggests more regulations will be a good thing so companies know precisely what they can and cannot do, while also keeping the people’s protection and interests at the forefront.

Singapore

In Singapore, the digital asset industry is regulated by the Monetary Authority of Singapore (MAS), which is a hybrid of the central bank and financial regulators. They address the licensing framework and requirements for companies that want to set up a business involving digital assets.

According to Liu, Singapore shows a proactive willingness to engage in creating an appropriate cryptocurrency ecosystem, opposed to some of their neighbors like China, Indonesia and

Thailand. However, the MAS has tightened regulations and guidelines telling cryptocurrency providers they should not promote their services to the general public in Singapore. They have also denied more than 100 cryptocurrency firms seeking to have their operations on Singaporean grounds.

Last year, MAS ordered Binance, one of the world’s largest cryptocurrency exchanges to stop providing payment services in Singapore and to stop catering their services to Singaporean residents. In the past year, there have been stricter regulations/guidelines on cryptocurrency in Singapore and Liu expects the same will continue in the future. However, she feels that in creating a robust set of rules to guide the ecosystem it could actually generate more business in the city-state.

Liu concluded her discussion on Singapore by saying that the future is still upon us in terms of crypto, suggesting that crypto in Asia is in its infancy and that we should know more in the coming years of how different countries are going to attack the up and coming industry.

China Mainland

Liu briefly touched on China mainland and their current regulatory framework on crypto and the potential implementation of a digital yuan. As it stands, China mainland strongly opposes any cryptocurrency and digital asset activity. While they have not passed any legislation on digital assets, they passed strict guidelines in September 2017 which named initial coin offerings

(ICOs) as criminal activities.

In September of last year, Beijing further tightened control on crypto activities and explicitly said that cryptocurrencies are not fiat and cannot be circulated as such. They also prohibited overseas exchanges from servicing people on China mainland.

At the moment it is extremely difficult for Chinese citizens to buy, sell and invest in crypto. Since September 2017 the industry has been hit extremely hard.

In addition to talking about the current landscape in China mainland, Liu also mentioned the potential for a digital yuan. Since 2014 China mainland has been exploring its own digital currency but has not launched anything for now. The digital yuan would fall under the authority of the People’s Bank of China.

According to Liu, the digital yuan concept would be a 2 layer system. The first core layer would be a non-blockchain layer, using banks as intermediaries. The second layer would use smart contracts in order for programmability.

Author: Tyler Irvin

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