Current State of Cryptocurrency Regulation Across Europe
Driven by hype and a lack of regulation, the cryptocurrency market in 2017 was truly a wild west. However, banks, regulators, and governments began clamping down in 2018, developing new legislation to govern this unruly new area. Financial authorities and regulators from all over the world began making arrests and bringing charges while also announcing plans to implement new regulatory frameworks with the aim of controlling the crypto space.
The recent G20 Summit, which took place in Argentina in March, showed that cryptocurrency regulation is a major priority for many countries. Most leaders and industry experts agree that regulation is needed to prevent money laundering, tax evasion, and other financial crimes, but that’s where the agreement stops. Views on cryptocurrency regulation range from outright banning of all crypto transactions to doing everything possible to bring crypto business onshore.
Nowhere is this great disparity of approaches more evident than in Europe, where national views on the role that cryptocurrency should play are anything but united. Although leaders and regulators across Europe recognize the advantage of acting in unison, they have been thus far unable to achieve a unified policy approach.
We’ve put together a small list of countries and territories in Europe (from West to East) and briefly outlined their approach to national cryptocurrency regulation.
Gibraltar’s Financial Services Commission (GFSC) announced in February that the British Overseas Territory would unveil one of the world’s first legislative frameworks aimed at initial coin offerings (ICOs). The government has given its blessing to the Gibraltar Blockchain Exchange (GBX), a platform which aims to vet ICO projects and help them launch their offerings while complying with all legal aspects. Gibraltar aims to become a blockchain and ICO hub for Europe and its regulations aim to make life as easy as possible for cryptocurrency startups.
The Bank of France proposed a ban on trading crypto assets for investment companies in March until proper regulations are enacted. However, French economy minister Bruno le Maire also proposed new laws for ICOs in March, to be enforced by the national markets watchdog, the Autorité des Marchés Financiers. Financial companies can trade securities using Blockchain platforms in France. Overall, French regulators have been sending mixed signals and have taken a more cautious approach.
The Emerald Isle established its own cryptocurrency, called the Irishcoin, in 2014 in a bid to promote tourism. Ireland’s Сentral Bank has ruled that cryptocurrency deals will be taxed similarly to stocks and bonds under the country’s tax code. No other significant legislation that may restrict the market has been passed. Ireland’s Finance Ministry established a research group to review Blockchain tech for trading and data reporting. In general, Ireland’s policies aim to attract blockchain startups and venture capital into the country.
The United Kingdom.
The UK Treasury established a cryptocurrency task force in March to gain insight into crypto markets in the UK and help create proposals for regulation as the country exits the EU. The Financial Conduct Authority (FCA), Britain’s financial watchdog, requires crypto firms to apply for e-money licensing before operating in the country. Bank of England governor Mike Carney is a vocal critic of cryptocurrencies but is against an outright ban. Lloyds Banking Group and Virgin Money banned the purchase of cryptocurrency with credit cards earlier this year. However, the FCA did also create a global fintech sandbox in March in order to develop collaborative global proposals for fintech regulations and initiatives from international leaders and industry experts.
Germany became the first country to accept Bitcoin as a currency back in 2014, and officially recognized Bitcoin as legal tender in March 2018. German Finance Minister Peter Altmaier said in March 2018 that individuals using cryptocurrencies as a means of payment will not be taxed. Although regulation is still not set in stone, many German blockchain startups are conducting business as usual. A subsidiary of the country’s second largest stock exchange announced plans to launch a cryptocurrency trading app called Bison, which will become the first ever trading app to be backed by a traditional stock exchange. The regulatory situation in Germany looks promising.
In line with its reputation as a global financial center, Switzerland has become a global hub for the crypto industry. Finma, the country’s financial watchdog, established regulatory guidelines for ICOs to require more transparency and compliance with AML and KYC regulations. Swiss bank Swissquote became one of the first financial institutions to offer clients cryptocurrency trading services. Switzerland’s open and accommodating legislative framework attracts ICOs from countries with more restrictive laws to conduct their offerings in Switzerland.
Two large family-owned private banks based in Liechtenstein, Bank Frick and LGT, announced that they allow clients to directly invest in Bitcoin, Litecoin, Ripple, and Ether in March. Liechtenstein’s regulatory framework is generally more liberal toward cryptocurrencies than other European nations.
Italy’s Ministry of Economy and Finance recently announced new reporting requirements for any business or entity that conducts crypto operations or services. However, the decree does not levy taxes or regulate exchanges, nor does it prevent businesses from accepting crypto as payment. Additionally, the country’s tax authority declared that purchases of virtual currency are not subject to capital gains taxes.
Malta’s push to pass crypto-friendly legislation is part of its drive to establish the country as a “blockchain island” and cryptocurrency haven. Legislation proposed by the Malta Financial Services Authority (MFSA), including the Virtual Financial Assets Act (VFAA) and Digital Innovation Authority Bill aim to make the laws clear and advantageous for companies considering moving their operations to the island. Binance, the world’s largest cryptocurrency exchange by trade volume, and OKEx, the third largest exchange, both recently announced plans to open offices in Malta.
A Polish blockchain organization created a working version of a national cryptocurrency called the Digital PLN, but the Polish government has been slow to enact regulations to facilitate its adoption. Poland recognized buying and selling Bitcoin as ‘official economic activity’ in early 2017, although crypto assets are still regarded as property under the country’s tax code and are regulated under anti-money laundering legislation. The Central Bank of Poland funded anti-cryptocurrency campaigns on social media in an effort to delegitimize its use. Poland has sent mixed signals about its commitment to crypto.
Sweden is well on its way to becoming the world’s first cashless economy and is a natural market for wide scale adoption of cryptocurrency. In fact, the Riksbank, Sweden’s central bank, revealed plans to launch its own cryptocurrency, called the e-krona, last November. Sweden’s Financial Supervisory Authority (Finansinspektionen) has publicly declared that cryptocurrencies are recognized as a means of payment, which means they fall under regular monetary laws and requirements, including KYC-AML processes.
Cryptocurrencies and ICO projects continue to be largely unregulated in the 3 Baltic countries of Lithuania, Estonia, and Latvia. One of the largest ICOs of 2018, Bankera, conducted its ICO from Vilnius and raised over $150 million. Many businesses across the Baltics accept cryptocurrency as payment for goods and services ranging from buying a cup of coffee to buying elite real estate.
A document called the Decree on the Development of Digital Economy, signed by President Alexander Lukashenko in December, officially came into force on March 28 in the Republic of Belarus. This new law legalizes businesses based on blockchain technology or any activity related to cryptocurrencies and digital tokens, and completely removes taxes for companies conducting an ICO in Belarus. Further, declaration of income from cryptocurrency operations is optional until January 1, 2023. Belarus became one of the first countries in the world where a smart contract has the legal status of an official document.
Finland’s high tech reputation and startup-friendly environment faces a large problem in attracting blockchain companies due to banks that refuse to conduct business with the country’s largest virtual wallet service provider, Prasos Oy. Finnish banks started blocking transactions from major crypto-exchanges after rapid increases in transaction volume have left them unsure of their ability to determine the origins of funds and remain in compliance with AML laws.
The Russian Ministry of Finance first proposed a digital assets regulation bill in January, which would establish regulatory procedures for the market and lend legal status to cryptocurrency. However, a group of Russian deputies submitted a separate bill on March 20 that aims to establish a regulatory framework for cryptocurrencies and ICOs, including redefining virtual currencies as financial assets, allowing trading only on authorized exchanges, and requiring compliance with KYC-AML and counter-terrorism financing laws. Russia’s Central Bank has proposed a ban on ICOs, but Russian president Vladimir Putin has said that he expects the Duma to pass legislation favorable to the crypto industry by July.
Regulatory approaches to the crypto space remain very different across Europe. It remains to be seen whether or not this diverse gathering of countries can develop a unified vision with regards to cryptocurrency regulation.