Section 7: Regulation developments overview by country
The Japanese banking giant, Softbank, has released a new payment card that has a built-in WiFi that can be used for both fiat and digital currency transactions. The original product, named SBC Wallet Card, features a prepaid debit card, a blockchain-based wallet that can be used either “hot” or “cold” for blockchain-based transactions, and a small on-card display. The underlying technology for the card was developed by the US firm, Dynamics Inc., which raised $110 million from investors, which included MasterCard.
Nomura Securities and SBI Securities have helped to found the Japan Security Token Offering Association, along with Daiwa Securities, Rakuten Securities, and others. It aims to develop self-regulation around security token offerings.
The Japan-based Muroran Institute of Technology is piloting a program to verify its students’ academic records using blockchain technology. It will also be used to fight resume fraud.
Also related to this topic, Japan’s recent move to raise the sales tax from 8% to 10% was accompanied by the decision to allow merchants to reward cashless payments by providing consumers with a 5% rebate on purchases. This is similar to Sweden, where the government is preparing citizens for the disappearance of cash.
Japan's Tech Bureau is set to launch a blockchain-powered medical records platform and has teamed up with Yokohama-based HealthCareGate for the project.
South Korea’s national policy committee has passed an amendment establishing a legal framework for cryptocurrencies. It requires crypto exchanges and service providers to register with the country’s financial regulator, and comply with the recommendations set by the Financial Action Task Force.
The CEO of crypto exchange, CoinUp, was sentenced to 16 years in prison for having duped thousands of investors, promising them a return of up to 200% within weeks. The scheme lured people into investing in an unlisted cryptocurrency and convinced them that the price would skyrocket after listing. However, the coins were never listed and investors lost money.
South Korea’s Ministry of Science and Technology plans to invest 450 billion won (~ $382 million) in blockchain research and development over a period of six years, from 2021 to 2026.
An American cryptocurrency researcher and member of the Ethereum Foundation has been arrested after traveling to North Korea for a secret conference on blockchain technology. He was charged by US authorities under the International Emergency Powers Act for allegedly providing technical advice on how to evade international sanctions using cryptocurrency and blockchain technology.
It appears that North Korea has been using a Hong Kong-based blockchain company to launder money, according to the quarterly report of the UN Security Council’s Sanctions Committee on North Korea. The report claims a man named Julian Kim, using an alias of Tony Walker, was the sole owner and investor in the firm and had attempted to withdraw money from banks in Singapore on several occasions. The laundering scheme circulated the stolen crypto using 5,000 transactions in multiple countries to obfuscate its source. So, everything is, in effect, public and analyzed on the BTC ledger!
Binance announced that it was now accepting fiat payment from WeChat and AliPay. This will, once again, provide Chinese citizens with access to cryptocurrencies.
The most senior official of the People’s Republic, Secretary Xi Jinping, has publicly declared support for blockchain, saying the country needs to take advantage of the opportunities the technology offers, qualifying it as “a key breakthrough that can facilitate China’s progress in core technologies.” Bitcoin soared from $7,500 to $10,500 in just a few hours following the statement. This impact is quite surprising because this statement does not indicate a significant change in the Communist Party’s position on Bitcoin, or it is banning the exchange of crypto for yuan (even though China has moved ahead of other nations in other vital technological fields, such as 5G and AI). Nevertheless, the market considers that any official statement that embraces a state-issued cryptocurrency is highly beneficial to BTC.
Later, when the Chinese central bank warned businesses involved in cryptocurrencies against improper actions and cautioned investors to be wary of virtual currencies, this was seen as justifying a price correction. And indeed, valuing the technology has nothing to do with endorsing new decentralized currencies.
At the end of November, central authorities cracked down on exchanges that were re-emerging to serve Chinese clients, leading five exchanges to either halt operations or announce that they would no longer serve domestic clients.
The Chinese State Administration of Foreign Exchange (SAFE) has expanded its pilot program for a cross-border blockchain financing platform from 9 to 19 provinces (out of 23 in total). Results so far appear to be very positive: by the end of October, the platform had processed 6,370 transactions and issued $6.8 billion in loans to a clientele of over 1,262 companies, most of which are small and medium-sized. Officials report that the pilot has reduced processing times from as much as two days to just 15 minutes. It also saves a mountain of paperwork and cuts out fraud.
CHINA (HONG KONG)
Since the Arab Spring, civil protests have changed, enabled by the internet and social networks. Usage of blockchain-based messaging systems is likely to push this to the next level (not to mention the use of cryptocurrencies by seceding territories).
Hong Kong’s unrest seems to be the perfect test case for an open-access financial system resistant to government interference. However, governmental forces have levers; for example, the internet is systematically shut down in HK protest areas, irrespective of the operator, reminding us that peerto-peer networks are built on existing connectivity
The Monetary Authority of Singapore (MAS), the city-state’s central bank, has completed development (in partnership with J.P. Morgan and Temasek) of a blockchain-based cross-border payment system, named Ubin, aimed at supporting a variety of currencies. It has been successfully tested with counterparts in the Philippines.
The MAS has also published a consultation paper, seeking to green-light what it calls "payment token derivatives" for listing and trading on "approved exchanges" in the country under its Securities and Futures Act (SFA).
The country is providing grants worth millions of SGD to sustain the local blockchain start-up scene.
Ho Chi Minh City aims to establish a regulatory framework and policies to tackle blockchain, to develop smart cities. People’s Committee Vice Chairman, Tran Vinh Tuyen, declared that science and technology projects that can help solve difficulties in the town and develop smart urban areas would receive priority, particularly projects using artificial intelligence. The city is increasingly becoming a regional high-tech hub.
Indonesia recently changed its tune regarding cryptos. Amid concerns of rampant fraud and suspicions, the Jokowi-led government initially turned its back on the blockchain when it issued an outright ban on cryptocurrencies, which took effect on January 1, 2018, in the wake of the crypto mania of 2017.
While the use of Bitcoin in transactions for goods and services is still prohibited, the country has signaled that it will encourage blockchain innovation. Back in February, the Indonesian government announced that it would create a legal framework to regulate cryptos and digital asset futures. This came just a few days after the Commodity Futures Trading Regulatory Agency announced that Bitcoin and other cryptocurrencies would be classified as tradable commodities.
The formal tone is resolute in trying to create a blockchain start-up landscape in Indonesia.
Thailand is conducting three pilot projects, one of which is a blockchain-based system that processes tax refunds for oil exporters. Another is a platform for trading “renewable” energy certificates, in association with the Energy Web Foundation.
The regulator is considering proactively reviewing the existing Thai crypto regulations that went into effect in May 2018. The Securities and Exchange Commission (SEC) Secretary-General is currently studying whether the current rules have any areas impeding the growth of the digital asset industry, and stated that the regulator would adopt a flexible attitude in applying the regulations, in line with the market environment.
India’s Ministry of Electronics and Information Technology is preparing a national blockchain strategy, or “framework”. Indeed, considering the potential of blockchain and different uses cases in banking, finance, and cybersecurity, the Government has decided to incentivize research and development of blockchain applications.
Indian investors continue to devise ways to bypass the ban on cryptos, including supplying fake KYC information when registering on foreign exchange platforms.
Crypto exchanges, Megatron and Binance, have added support for the Indian rupee. Traders can now buy and sell crypto with Indian rupees.
A project is underway to use blockchain to manage Australian digital health records. This follows many reported security breaches related to the current data repository.
The Russian parliamentarian in charge of drafting the country's crypto laws has stated that a method should be devised to prevent criminals from using cryptocurrencies. The stance taken is that legislation should allow blockchain and crypto businesses to develop, but at the same time block channels that exploit the illegal usage of these tools.
Ministry of Internal Affairs intends to develop legislation to seize cryptocurrencies involved in criminal activity. In this regard, tokens that have no legal status is proving to be an obstacle for police when fighting crime funded by cryptocurrencies. But the ministry is said to be teaming up with law enforcement agencies in a bid to have an appropriate legal framework in place by 2021.
On November 29th, the Central Bank of Russia came out against Bitcoin, claiming that the local ruble should be the nation’s only legal tender. Lately, the support of a complete ban is a trendy position for officials to take – obviously worrisome for pure cryptocurrencies.
Sberbank is the first Russian bank to obtain patents for a repo deals solution and an execution system that utilize distributed ledger technology. The answer was developed in-house and enabled the parties (to a deal) to register the terms of a repurchase agreement inside a self-executable decentralized environment, i.e., sign a smart contract. The parties then sign the smart contract with e-signatures via a distributed ledger. The contract will then meet the terms of the first part of the repo deal by transferring funds and securities to the respective parties.
Ukraine recently appointed a new pro-crypto minister and wants Binance to help it work out how best to serve its citizens. According to Binance’s
press release, the exchange will help the Ukrainian government develop “transparent and effective mechanisms” for crypto sales, and “beneficial conditions for investments and business in Ukraine.” The working group hopes to present something to the Ukrainian Parliament before the year is out.
The Swiss Federal Council has submitted the finalized draft law on distributed ledger technology to the Swiss Parliament. A cornerstone of the bill is improved legal certainty in connection with the issuance and transfer of tokenized rights and financial instruments, such as bonds and shares.
To that effect, it introduces "Uncertificated Register Securities", a new concept with specific rules in the Swiss Code of Obligations for corporations looking to issue shares in tokenized form. The tokenization of rights will, in effect, enable the electronic registration of reasons that have the same functionality and equal protection as traditional negotiable security. Consistent with existing regulations, the Swiss regulator has excluded payment tokens (i.e., "pure" cryptocurrencies, for example, Bitcoin), from this new concept, since these do not give rise to claims against an issuer or a third party.
Bitcoin Suisse continued to consolidate as an important actor in the country, highlighted by renewed advertising campaigns on the streets of Zürich. As a custodian, it intends to offer its clients a staking service in the future Ethereum 2.0 (and taking a 15% cut).
The United Kingdom Jurisdiction Taskforce, one of the Lawtech Delivery Panel’s taskforces, has published a statement concerning the status of cryptocurrencies, distributed ledger technology, EUROPE and smart contracts under English and Welsh law. The document attempts to address the legal uncertainties of cryptocurrency and recognizes crypto assets as tradeable property, and smart contracts as enforceable agreements under the local law.
Sweden’s Central Bank governor has outlined a sixstep plan on how the state bank can implement its digital currency. A checklist of required steps was outlined that must be completed before the idea is fully implemented. Sweden’s digital currency will have to meet the following criteria. (1) It must be available 24/7 and allow for payments anywhere, no matter how big or small. (2) Crossborder transactions are a must. The Swedish digital currency must also be easily convertible to other acceptable currencies. (3) Legal tender laws must be updated to include digital currencies. (4) The digital currency will be issued directly by banks, with Swedish Central Bank oversight. (5) Digital IDs will accompany digital currency to prevent money laundering and improper use. (6) Physical cash must still be kept as a safeguard in case the digital currency systems fail.
The German Federal Financial Supervisory Authority issued a warning against 5 Capital, a Bulgarian cryptocurrency broker after the firm illegally offered CFDs (contracts for difference) designed to expose clients to the price movements of cryptocurrencies.
The Parliament passed a bill allowing banks to sell and store cryptocurrencies. From January 2020, German custody providers and crypto exchanges will be required to apply for a license before the end of 2020. The expressed intent is to attract foreign capital that seeks security and regulatory certainty. As one observer put it, "Germany is well on its way to becoming crypto heaven.” German crypto companies have three specific options: apply for a license, work with a licensed cryptocurrency custodian, or work with a licensed provider.
The central bank of France, Banque de France, is seeking a blockchain analyst to help the bank define a program for implementing a digital currency. The bank is also hiring a development engineer to study the application of blockchain for crucial banking functions.
The European Investment Fund (EIF) and the European Commission have together put 110M euros on the table, and hopes to raise other 300M euros from private investors to fund blockchain projects through VCs. The stated goal is to take action to ensure that it does not lag behind the US and China in the development of distributed ledger technologies and related applications.
The Comisión Nacional del Mercado de Valores has warned the public against an ICO, AlyCoin, which purports to provide its customers with financial services that Spain considers to violate the second paragraph of the securities markets law.
Italy is following the crowd by working on a legal framework to regulate cryptos and blockchain. The government is favoring distributed ledger technology innovations, especially in fintech (which is nothing extraordinary, of course).
The Malta Financial Services Authority has issued a warning related to a Bitcoin scam. The agency cautioned the public that an entity, dubbed “Bitcoin Future”, appeared to display “the same deceitful characteristics” as a separate scam, dubbed “Bitcoin Revolution,” against which it had already issued two public warnings.
The Maltese Prime Minister, Joseph Muscat, said that he would resign in January after it was revealed that his former chief of staff, Keith Schembri, was linked to the killing of a journalist in 2017. As Muscat was highly involved in making Malta a crypto island, this may have an impact on the country’s policy regarding the big players that he was keen to support, with Binance at the top of the list.
The Royal Bank of Canada has shown interest in blockchain patents, which indicates at least curiosity towards the technology.
Canada’s blockchain ecosystem has delivered a petition to the Canadian administration advocating more legal clarity.
A survey published by the Bank of Canada indicates that between 2016 and 2018, the percentage of Canadians who were aware of Bitcoin increased from 62% to 89%, and those who owned Bitcoin increased from 3% to 5%. However, the number of past owners also increased, suggesting an influx of Bitcoin owners, many of whom subsequently divested after the steep price rises in 2017. The main reason for owning Bitcoin remains speculation, although this share is decreasing steadily. On the other hand, the percentage of Canadians who reported using "Bitcoin for transactions a few times a month or more increased. These are interesting statistics to bear in mind as far as adoption is concerned".
UNITED STATES OF AMERICA
In recent years, centralized cryptocurrency exchanges have consistently exited the US market. The most significant was the exodus of Poloniex, obviously the result of stringent local regulation, basically rendering the service of US passportholders too risky, and a business that no one wants to support. This shows that the exchange platforms are the weak point of the crypto environment. US citizens are mostly reduced to using VPNs or decentralized exchanges to participate in the game, while Coinbase is, in effect, merely a brokerage platform. So clearly, there is a space available for competitors, for example, Abra which is currently expanding.
AFRICA AND MIDDLE EAST
In this edition, we will look at Africa in more detail than usual. The “leapfrogging” concept, as seen in the example of mobile phones that reached the African continent before landlines, is often seen as applicable to banking/finance thanks to the promise of cryptocurrencies. In that sense, Africa is regarded by many as the place that is likely to play a central role in cryptos. Analysis of Google searches related to blockchain and Bitcoin shows
that countries like Nigeria, Ghana and South Africa lead the global ranking in terms of the sheer number of searches. In these countries, the proportion of internet users who own crypto is exceptionally high, reaching as high as 10% (compared to the worldwide average of 5%).
One of the reasons is that poor African families, who depend on money transfers from abroad to make ends meet, regard the high cost of using PayPal or Western Union as unacceptable. These populations cannot afford to lose 10%+ of their financial resources, which is sure to push people towards crypto alternatives.
Also, for those living in Zimbabwe, for example, with no bank account, a crypto wallet, and say, XRP or Monero makes much sense, provided the cryptocurrency is not more prone to devaluation than the official fiat. Regardless of the underlying technology, if that provides an effective alternative to storage and transfer value, then why not?
The artist, Akon, is using his regional popularity to promote his philanthropic visions, which include the electrification of the continent, and enhancing African unity utilizing cryptocurrencies. He is building a city in Senegal that will be 100% crypto compatible.
The governor of the West African nation’s central bank, Ernest Addison, stated that Ghana might issue a digital form of the nation's currency, the cedi, shortly, and is in talks to develop a pilot project in a sandbox environment.
Kenya, the financial hub of Africa, has been testing the first blockchain application to provide banking services to its otherwise unbanked population. Notably, Kenyan banks aren’t pleased about this, as the new competition will undermine their business.
Apart from serving individuals, AZA, a company based in Kenya, is helping African companies to do business with foreign countries, especially China. For instance, a Nigerian customer can directly benefit from the naira/yuan pair, which all standard banks would route through USD (or sometimes EUR). Passing through cryptocurrencies is an option with a low barrier to entry, which AZA deploys, and which is now worth ~100M euros per month in transactions handled throughout Africa.
The Apollo Foundation has announced a Memorandum of Understanding (MoU) with the nation of Lesotho to develop and implement blockchain technology in various government departments and initiatives.
The central bank of South Africa is formulating new rules to govern the use of cryptocurrency and digital currency in the country and will deploy the new rules in early 2020. The main goal is to prevent cryptocurrency from being used to evade currency controls. The new regulations will limit the amount of local currency that can be transferred out of the country. This concern is a clear parallel with Chinese interests and was the stated reason for the regulation that forbids yuan/crypto exchanges.
The First National Bank (FNB), one of South Africa’s biggest banks, has shut down the accounts of all companies dealing in cryptocurrencies. The banking sector in the country is increasingly concerned about the risk associated with serving crypto-related businesses.
The trial of a land registry on the blockchain is being conducted, involving about 1000 governmentsubsidized properties in Cape Town.
The Central Bank of Tunisia issued a statement denying that it has issued an e-dinar, saying that an unrelated “proof of concept” project was taken “out of context”. But it confirmed interest in exploring all existing opportunities.
The Algerian Government appears to be moving towards a total ban of Bitcoin and other digital currencies, including the prohibition of possession, not just banning it as a form of payment.
Morocco intends to simplify access to various financial services by implementing blockchain technology. The country’s central bank governor, Abdellatif Jouahri, while talking at the Africa Blockchain Summit in Rabat, stated that the country would employ financial technology to improve access to financial services.
Fintech applications, including the deployment of blockchain technology, are intended to assist Morocco to offer “all individuals and businesses fair access to formal financial products and services to promote economic and social inclusion.”
Turkey is emerging as a country with a lot of activity and interest in cryptocurrencies. Binance has revealed that the country is increasingly important in terms of trading activity. The recent Turkish currency crisis may explain this trend, at least partly.
Turkey’s 11th Development Plan covering 20192023 was recently released and includes a commitment to creating ‘digital money’ via blockchain technology. In other words, Turkey is joining the pool of countries whose central banks are working on putting their fiat on a blockchain.
The launch of the Hogeg Institute for Blockchain Applications by Tel Aviv University in 2018 has strengthened the development of talent to drive innovation in blockchain technology.
The proactive participation of the government with developments such as the highly detailed “Interim Report on the Regulation of Decentralized Cryptocurrencies” released by the Israel Securities Authority is also providing regulatory clarity that gives startups the freedom to experiment.
On the occasion of a visit by the Crown Prince Mohamed Ben Salmane to the Emir of Abu Dhabi, Mohamed bin Zayed al Nahyan, a surprising joint declaration was made: the Saudis and the UAE intend to launch a universal digital currency to facilitate exchanges between the two countries. However, the intention is to use it exclusively for interbank settlements.