Is it necessary to regulate cryptocurrency exchanges?
As the cryptocurrency industry develops, governments around the world are raising concerns about cryptocurrency asset trading regulations.
China banned all financial institutions from conducting cryptocurrency transactions in May 2021. Fearing financial crimes, retail banks in the United Kingdom halted all transactions to exchange platforms. These recent restrictions on cryptocurrency exchanges and markets indicate that the industry is moving in a more regulatory-focused direction.
What does it mean to have a regulated crypto exchange?
Many controversies have surrounded cryptocurrency exchanges, most notable incidents involving anti-money laundering policies and numerous hacking cases.
Whether classified as an exchange or an alternative trading system (ATS), every platform and business must adhere to strict rules designed to protect investors and avoid financial system destabilization. The measurements determine by the jurisdictions in which it is used.
Because the value of Bitcoin has never been linked to any real-world asset, many fundamental aspects of the process of integrating cryptocurrencies with existing financial infrastructure have shifted dramatically.
According to an Action Fraud report, £63 million was stolen through phony online investments, with 44.7 percent of those scams involving cryptocurrency investments.
Because many exchanges facing charges of “false reporting” and “wash trading,” and others investigated for questionable trading practices, the regulatory focus is increasingly turning to trade platforms operating in the cryptocurrency space.
The regulatory frameworks in most fast-forward countries are focused on anti-money laundering (AML) and due diligence measures.
Countries that are leading the way in terms of cryptocurrency regulation
Take a look at some of the top cryptocurrency exchanges that are leading the way in terms of industry-wide regulations:
SEC in the USA uses the “Howey Test” to determine whether a virtual currency is subject to securities laws. In the United States, all initial coin offerings (ICOs) are treated as securities, except for BTC and ETH.
- United Kingdom of Great Britain (U.K.)
In the United Kingdom, digital currencies aren’t treated as currencies or commodities by the Financial Conduct Authority (FCA), leaving no room for the regulator to exercise jurisdiction over them. Furthermore, the FCA warns consumers about ICOs regularly, describing them as speculative investments.
The Monetary Authority of Singapore (MAS) opposes outright bans on virtual currency trading. It does, however, have control over how the technology is used. According to the regulator, utility tokens do not require as much power as payment and security tokens.
The Payment Services Act 2019 (PSA) is new legislation that took effect on January 28, 2020, in Singapore. The PSA was created to bring Singapore’s payment-related legislation up to date with significant payments industry innovations in recent years.
Cryptocurrencies are favored by Japanese regulations, which recognize them as legal property, and the Financial Services Agency oversees the sector. As a result, cryptocurrencies such as Bitcoin can now be used as legal tender in Japan. Cryptocurrency exchanges operating in Japan, on the other hand, must adhere to AML/CFT and consumer protection laws.