The emergence of a virtual asset as a means of savings that can be transferred or exchanged digitally was developed as a decentralized form of electronic currency that allows peer-to-peer (P2P) transactions without the involvement of a centralized authority, such as a national central bank (Central Bank).
As the demand for the use and development of a virtual means of payment - a crypto asset, which was created as an alternative to the national currency - grew, interest in it increased rapidly, becoming the subject of close attention of global regulators.
In turn, global regulators identify a considerable number of potential threats in virtual assets, in particular:
· high volatility of the crypto asset rate, which means market instability;
· the spread of fraud, which leads to the loss of assets, digital wallets, and other metadata of crypto market participants;
· use of virtual currency for the benefit of money laundering and sponsoring terrorism, and other illegal actions that create favorable conditions for criminal operations;
· the absence of a general legal framework, which leads to the absence of systemic regulation of the crypto industry, the system of insurance of investors/market participants, the inability of participants to claim compensation for losses, the absence of evidentiary nature of their rights to virtual assets;
· destabilization of the economy both at the national level and at the global level due to the high demand of participants/investors when using digital assets;
· violation of the rights of consumers, investors/participants, and market stability taking into account the risks associated with crypto assets.
This situation is of concern not only to regulators and central banks but also to international organizations such as the International Monetary Fund (IMF), the Task Force on Anti-Money Laundering (FATF), the Organization for Economic Co-operation and Development (OECD), the Basel Committee on banking supervision and others.
The possibility of regulation and cooperation within the framework of international interaction between countries and/or organizations indicates the ability to move in one direction, which allows crypto assets to play a regulated role in the economy. It also promotes global cooperation in creating a large base of rules and standards that will contribute to the maximum coordination of the crypto asset market.
To date, there is no unified effective approach to the regulation of virtual assets at the global level. Although, at the national level, countries are gradually introducing certain restrictions or, on the contrary, are allowing the crypto industry to develop as a new industry.
For example, in the United States, a virtual asset is not considered legal tender. While the Federal Financial Crimes Enforcement Agency (FinCEN) along with the Internal Revenue Service (IRS) consider crypto exchanges to be a means of transmission, digital currency is defined as "a digital representation of value that functions as a medium of exchange, unit of account, and/or medium savings". As such, virtual asset exchanges are legal in the US and subject to the Bank Secrecy Act (BSA). Meanwhile, the US Securities and Exchange Commission (SEC) has indicated that virtual assets are securities and apply under securities law to digital wallets and exchanges. The Commodity Futures Trading Commission (CFTC) defines a virtual asset as a commodity and allows public trading of derivatives in the form of crypto assets. In response to the recommendations issued by the FATF in June 2019, the Federal Financial Crimes Enforcement Agency (FinCEN) has committed to monitoring the collection and sharing of information about the initiators and beneficiaries of crypto transactions from crypto exchanges. At the moment, the US continues to develop federal legislation on crypto assets.
In Switzerland, however, crypto assets and crypto exchanges are legal, and the Swiss Federal Tax Administration (SFTA) considers virtual currency assets, which in turn are subject to Swiss wealth tax and must be declared in annual tax returns. In September 2020, the Swiss Parliament passed the Blockchain Act, which further defines the legality of crypto asset exchanges and crypto exchanges in Swiss law to adapt existing financial regulatory provisions to include virtual assets. In 2021, the Swiss Federal Council voted in favor of a project to further adapt existing financial regulations to virtual assets to solve the problem of their illegal use.
Japan remains the most progressive and favorable country in the world to regulate virtual assets and recognizes Bitcoin and other digital currencies as legal property under the Payment Services Act (PSA). In December 2017, Japan's National Tax Agency ruled that profits from virtual assets should be classified as "other income" and investors should be taxed accordingly. According to the Financial Services Agency of Japan (FSA), a law will soon be proposed to regulate issuers of stablecoins (a digital currency that is tied to fiat currency) to reduce risks for customers and limit the possibility of using stablecoins for money laundering. This legislation will include new security protocols and new obligations for crypto service providers to report suspicious activity.
In 2020, the European Commission first came forward with a proposal known as the Market Regulation of Crypto Assets (MiCA). This is the first large-scale project that will be applied directly in the European Union (EU) for all participating countries without any additional national implementing laws.
The following can be identified as the main goals of the crypto market regulation project:
· ensuring legal certainty by creating a reliable legal basis for crypto assets in the field of their application, which is not subject to the current legislation on financial services;
· avoiding duplication of updated legislation Anti Money Laundering and Financing of Terrorism (AML / FT) by creating public registers of crypto asset service providers;
· supporting innovation and fair competition to promote the development of crypto assets by creating a safe and proportionate structure;
· protection of consumers, investors, and market integrity taking into account the risks associated with crypto assets;
· ensuring financial stability, including security measures to eliminate potential risks.
This approach complies with the protection of consumer rights and ensures efficient and coordinated access to innovative crypto asset markets in a single market.
Within the framework of MiCA, among the obligations of issuers of crypto assets, the following can be named:
1. Publication of a technical document that bears some resemblance to prospectuses published under the prospectus provision.
2. The need for registration, and authorization for issuing crypto assets.
3. Adherence to certain prudential rules during the sale of crypto assets.
4. Obligation to act honestly, fairly, and professionally towards owners of crypto assets, in particular concerning conflict management and prevention or support of secure access protocols.
The applicable obligations depend on several factors, including the type of crypto asset offered and the amount of the offer.
Concerning crypto providers, entities providing crypto asset services must qualify as crypto-asset service providers. The specified standard services performed and provided in respect of any type of crypto assets falling within the scope of MiCA are subject to registration and regulation by MiCA regulations. Custody and management of crypto assets on behalf of third parties, as well as providing advice on crypto assets, are part of the services that qualify as crypto asset services.
Regulation of the crypto asset market under MiCA can provide a harmonized legal framework with robust safeguards for unregulated crypto assets, as well as for service providers engaged in this business and ultimately for consumers.
On October 5, 2022, the European Council signed the MiCA text, and already on October 10, members of the Committee on Economic and Monetary Affairs of the European Parliament adopted a bill on the regulation of cryptocurrencies, thus supporting the MiCA regulation and all relevant provisions.
According to representatives of the EU Committee, the MiCA initiative will be able to influence the ability of market participants to diversify their business through the development of a crypto asset strategy, as well as the ability to increase trust in banks and offer crypto companies a single license to operate in the EU.
This regulation has only to be adopted by the European Parliament by the end of October, after which it will enter into force after the expiration of the 18 months.