Compliance surrounding cryptocurrency is still a grey area. Crypto remains a relatively new concept; however, the use of digital currency is increasing and, with it, the number of uncertainties are too.
But as the use of crypto becomes more prominent, so too must the regulation of it. But how can you make sure that you’re informed on cryptocurrency regulation and compliance?
The cryptocurrency problem
The cryptocurrency market is estimated to be worth $3 trillion, so it stands to reason that governments, authorities, and organisations are lobbying to establish some kind of regulatory system for it.
Cryptocurrency can be defined as a decentralised digital payment system intended to be used for buying and selling. It is stored in digital wallets which function as computerised databases and use strong cryptography to control and record transactions. Crypto, which can come in many forms, allows anyone anywhere in the world to send and receive payments without the need to rely on banks to verify the transactions.
One of the major issues with crypto cash in terms of compliance is that they are flat currencies; they are not backed by any convertible commodities that are declared to be legal tender ? such as gold or silver, for instance. This makes regulating crypto extremely challenging. However, the use of cryptocurrencies in an increasingly digital world is rising, therefore governments and organisations need to create measures to establish a centralised system that controls it.
As cryptocurrency use increases, the threat posed to organisations could also rise and so they will have to strengthen their regulatory compliance an d risk management strategies in preparation. Companies could be at increased risk from fraud, for instance.
Compliance and regulation of cryptocurrency
Crypto compliance working groups have been formed to help develop industry standards and regulations. Often made up of law enforcement bodies, policy makers, and crypto exchanges and ATM providers, these associations aim to create legal guidelines for sustainable business practices around cryptocurrency. However, it remains to be seen whether these associations will make an impact on the cryptocurrency regulatory landscape.
Some of the world’s biggest economies have started to make provisions to establish legislation with the aim to regulate cryptocurrency. The UK and US seem to be accepting the crypto revolution by looking at ways to develop measures towards its regulation; while China has outright rejected it and made it illegal.
While the UK Government has stepped-up its measures towards some kind of regulation of digital money within the last few years, cryptocurrencies are still not legal tender in the country. In 2020, the government confirmed that crypto assets are property. The following year, it was ruled that all cryptocurrency businesses, such as advisors, exchanges, and professionals, operating within the UK market must register with one of the country’s financial regulatory bodies, the Financial Conduct Authority (FCA). However, the FCA banned Binance, the world’s largest cryptocurrency exchange, from all regulated activities in the UK.
Over in the United States, lawmakers got the ball rolling on making legislation to regulate cryptocurrency last year. At present, the US Securities and Exchange Commission (SEC) is considering what measures to take regarding its regulation.
Meanwhile, China banned all payment organisations and financial institutions from providing services related to cryptocurrency transactions last May. In September, the Chinese Government finalised its crackdown on digital money by declaring that all crypto transactions were illegal.
With different countries offering different approaches to cryptocurrency, it just creates even more uncertainties around it. Ideally, global leaders will come together to create a centralised system to strengthen regulation, and hence compliance, within the crypto market.
Conclusion
Cryptocurrency is still a relatively new concept, therefore it poses significant challenges when it comes to compliance. Regulation of cryptocurrency is still in its infancy; however, with recent proposals to legislate the use of digital money within the UK and USA, it’s reasonable to assume that other countries will follow suit and begin regulation of crypto. But for true compliance, it would be beneficial for everyone if governments worked together to create a more centralised system to regulate cryptocurrency. Ordinary businesses, in the meantime, should try their best look ahead and predict potential future regulations in order to strengthen their compliance strategies in preparation.
