Korea’s National Assembly Suggests Delaying Income Tax Rule on Crypto Assets to Jan 2022

South Korean lawmakers have allegedly proposed to delay the upcoming income tax rule on crypto-assets by three months from its scheduled commencement date in October 2021. According to the Dong-a Ilbo, a South Korean media which first reported this news, the law might come into effect later in January 2022.

The report notes that South Korea’s National Assembly, led by its planning and finance committee, recently tabled a report to suggest this law’s delay. This is because local crypto exchanges have asked for more time to develop proper tax infrastructures to meet the reporting requirements.

Through the Ministry of Economic and Finance, South Korea’s government made amendments to its tax code back in July. The new framework, which is yet to be approved by the National Assembly, proposed a 20% capital gains tax on crypto trading activity for income above 2.5 million Won ($2000).

As earlier reported by BEG, the suggested South Korea tax code details how transacting parties will annually report their taxes. It outlines that tax payments associated with crypto assets will be paid in May, per the ‘Taxation on Virtual Asset Transaction Income’ section on the new tax code.

Notably, the proposed tax on virtual assets is applied to both residents and non-residents that leverage South Korea-based crypto exchanges for their digital asset activity. With the commencement dates pushed back, the planning and finance committee is expected to update in the coming days.

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Author: Edwin Munyui

US Regulator OCC Proposes ‘Fair Access’ to Banking Services For All Including Crypto Companies

The Office of the Comptroller of the Currency (OCC), the US’s national bank regulator, has proposed a rule that would forbid banks from providing their services to legal industries, including cryptocurrency companies.

As per the proposed rule, led by former Coinbase counsel Brian Brooks, fair access is promoted under which financial services could be denied by banks to customers only on the basis of “quantitative, risk-based standards established in advance.”

They can’t do so due to political pressures, to prevent the customer from entering or competing in a market or to benefit another person or business activity.

Published on Friday, the proposal does not explicitly mention cryptocurrency but is surely welcoming news for the industry, which has been time and again denied the services by the banks.

The proposal does mention Operation Choke Point, an initiative taken by the Justice Department under the Barack Obama presidency that reportedly aimed to shut down the fraudulent businesses and lenders.

It further reads that it has been revealed that the government agencies have pressured banks to sever their financial services access to “disfavored (but not unlawful) sectors of the economy.”

But neither OCC nor banks are well-equipped to balance these risks that are unrelated to the financial exposure, it said.

Marco Santori on US OCC
Source: @MSantoriESQ

“Fair access to financial services, credit, and capital are essential to our economy,” said Acting Comptroller of the Currency Brian P. Brooks.

“This proposed rule would ensure that banks meet their responsibility to provide their services fairly since they enjoy special privilege and powers because if the system fails to provide fairness to all, it cannot be a source of strength for any.”

The proposal is open for public comments until January 4, 2021.

This week, President Donald Trump nominated the acting Comptroller Brooks as the permanent head of the OCC, a five-year stint.

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Author: AnTy

Bermuda-Based Digital Asset Bank, Jewel, Partners With Crypto Custodian Anchorage

Jewel, a proposed digital asset bank in Bermuda, has been added as one of the clients to Anchorage’s digital asset custodial services. The yet to be approved digital asset bank announced on September 16, noting that the move will be beneficial to crypto companies based on the island.

Anchorage, licensed in the U.S, significantly increases the value proposition of Jewel digital asset bank as a prospectus entity in the Bermuda crypto banking space. Jewel’s chairman and founder, Chance Barnett said,

“Our relationship with Anchorage enables us to serve our clients with the rigorous security and product standards needed for bank-level safety, service, and compliance.”

Leveraging Anchorage as its crypto custodian will help Jewel run operations smoothly; the target functions include the provision of checking accounts and other crypto banking services to firms in this niche. Consequently, Anchorage is set to play a fundamental role in the custody of digital assets entrusted to Jewel by its clients.

It is quite noteworthy that Anchorage’s custodial services are relatively liquid, given that the firm does not use cold storage. Jewel is optimistic that this position will further facilitate its product scaling to feature lending services for crypto-oriented entities. The company’s Chief Revenue Officer, Jill Richmond, added that they intend to increase operations to other jurisdictions as well,

“We are at the forefront of being able to service global markets … We have existing letters of intent at the moment with a number of the top Tier I, Tier II digital asset exchanges.”

Bermuda’s Progressive Blockchain and Crypto Approach

While Jewel will probably be the first approved digital asset bank in Bermuda, the island has been a leader in the blockchain adoption and regulatory space. Some notable milestones include developing a blockchain identification system in collaboration with the Shyft network and Perseid. The small island is also becoming a crypto business hub with exchanges shifting operations from stiff regulatory jurisdictions like the U.S.

Interestingly, Bermuda’s government is also one of the few authorities that accept tax payments in crypto, the USDC coin, to be specific. If Jewel is given the go-ahead, the crypto payment options will probably scale based on this digital asset bank’s ability to spur integration by acting ‘as the banking bridge between digital assets and traditional fiat currency (USD) held in banking accounts.’

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Author: Edwin Munyui

US FinCEN Set to Upgrade AML Guidelines in Wake of Evolving Illicit Financial Crimes

  • The US Financial Crimes Enforcement Network (FinCEN) has issued an advanced notice of proposed rulemaking (ANPRM) to amend its anti-money laundering (AML) guidelines, ensuring that all covered financial institutions maintain an efficient AML program.
  • This includes crypto entities that run under the Money Service Business (MSB) licenses, amongst other approvals, to offer this line of service to US residents.

According to the announcement on September 17, FinCEN is seeking feedback from stakeholders affected by changes to the AML requirements. This bureau of the US Department of the Treasury has since issued 60 days for interested stakeholders to have commented on prospectus regulatory amendments.

FinCEN noted that this move is particularly important in the combat of evolving illicit financial crime and will therefore set the stage for more solid AML practices,

“The regulatory amendments under consideration are intended to modernize the regulatory regime to address the evolving threats of illicit finance, and provide financial institutions with greater flexibility in the allocation of resources, resulting in the enhanced effectiveness and efficiency of anti-money laundering programs.”

Upon implementation, the prospectus changes will affect compliance and reporting by US domiciled financial institutions. FinCEN highlighted that the amendments are expected to be detailed enough, such that there is clear clarification on risk assessment methods, coupled with the consideration of oversight requirements under the US Bank Secrecy Act and AML priorities.

Crypto Businesses Amongst the Targets!

With a decade gone by since crypto made a debut, regulators appear to be paying more attention now that the trend is no longer a hype but a threat to traditional financial ecosystems. One of the areas that have proved incredibly difficult for oversight agencies is crypto in money-laundering and terror-financing activities.

It, therefore, comes as no surprise that FinCEN is joining its counterpart agencies like the IRS, which recently issued a $625,000 bounty for anyone who would crack Monero’s anonymous ecosystem. Going forward, more financial oversight authorities are likely to take a similar route as crypto gradually goes mainstream.

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Author: Edwin Munyui

FCA Proposes UK Crypto Exchanges And Wallets Share Money Laundering Data With Regulator

The UK’s top regulatory body, the Financial Conduct Authority (FCA), has proposed a new policy for crypto exchange and wallet custodians. This policy requires crypto companies to submit a detailed history or report on potential money laundering. The FCA noted that they are planning to extend certain obligations for crypto companies for the reporting of money laundering risks associated with their customer accounts.

The FCA first started demanding an annual crime report from financial institutions in 2016. As per the latest proposal made by the regulatory body, “crypto-asset exchange providers and custodian wallet providers” must provide the FCA with a report about their financial crime risk, “irrespective of their total annual revenue.”

It is to be noted that the policy is just a proposal at present, which has been put up for comments by the regulatory body until November 23rd and based on the feedback they receive, the FCA plans to release a policy statement along with new rules by the first quarter of 2021.

How Would New Policy Pan Out?

As per the new policy introduced by the FCA, some further information that crypto businesses might be required to submit the lists of customers put in the ‘high-risk’ category. List of customers who refused to provide their details or left because of the information demand from them along with the top 3 prevalent frauds.

The crypto companies would be required to submit “from their next accounting reference date after 10 January 2022.” The FCA also made a critical change towards crypto exchanges, which open their base in tax-havens but operates all around the globe. The new FCA policy defines “operates” as “where the firm carries on its business or has a physical presence through a legal entity.”

The FCA revealed that the main reason behind such policy changes is to harvest data from potential fraudulent companies so that the right amount of resources could be dedicated to these companies, which in turn would help in containing the money laundering risks. The FCA also stated,

“There may be additional reporting obligations that we might require of crypto-asset businesses in the future.”

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Author: James W

South Korea to Implement 20% Income Tax on Crypto Gains After Finalizing on New Tax Code

South Korea’s government has tabled its final proposed tax code on cryptocurrencies with the tax rule set to be implemented from October 2020. The new tax rule will see a 20% income tax on crypto gains take effect as South Korea’s government scales its effort to capture digital asset revenue.

The final documentation was agreed upon by South Korea’s Ministry of Economy and Finance, which met on July 22. It has since published the revised tax code paying attention to digital assets in a section dubbed ‘Taxation on Virtual Asset Transaction Income.’ Notably, crypto transactions within South Korea’s financial ecosystem were not subjected to any taxes prior to this development.

South Korea’s Crypto Tax Code

According to the authorities, a movement towards taxation was inevitable, given some jurisdictions like Singapore have already made progress in this area. Consequently, South Korea is now catching up after an increase in the use of Bitcoin and other crypto-assets for business activity. With the new tax code in play, gains made from crypto will be categorized as taxable income, obliging the associated parties to report annually.

The framework stipulates that income above 2.5 million Won annually ($2,000) is subject to the outlined tax, while anything below will not be taxed. It goes on to provide guidelines on how to report the crypto trading activity with the payment month set for May. It is also quite noteworthy that this new tax code will apply for both residents and non-residents operating on South Korea domiciled crypto exchanges.

This work has been in progress for over six months, and a final proposal comes as a relief to stakeholders such as courts who had been waiting for better clarity on crypto taxation. A recent judgment had echoed these sentiments, pointing out the need for income tax classification on crypto assets,

“Until now, virtual assets have been recognized only as a function of currency and have not been subject to income tax, but recently, virtual assets (like Bitcoin) are increasingly being traded as goods with property value.”

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Author: Edwin Munyui

Spain to Implement EU’s 5AMLD For Crypto Firms With Recent Amendment Proposal

Spain’s lawmakers have proposed an amendment to level up the country’s compliance with Europe’s Fifth Anti-Money Laundering Directive (5AMLD).

This set of regulations came into action earlier this year, pushing EU member states to take charge of crypto oversight within their jurisdictions. With Spain behind the EU’s schedule, its lawmakers will be ready to vote on the amendments within 2020.

The 5AMLD was implemented as a first step towards a comprehensive regulatory framework for digital assets. This first step comes after the crypto ecosystem became a new hub for illegal activity, such as terror financing and money laundering. Spain’s government website has since reiterated that its newly tabled draft law is in line with the 5AMLD objectives:

“The Draft Law advances in the reinforcement of the money laundering and terrorist financing control system, incorporating the new community provisions and including additional improvements in the current regulation to increase the effectiveness of prevention mechanisms.”

Once approved, the law will require crypto firms operating in Spain to register with the country’s financial watchdog. These include businesses such as crypto exchanges, custodial service providers, and digital wallet providers.

Apart from registration, entities in this industry will be required to prove compliance over their life span. Spain’s financial regulator will be able to monitor their activity through due diligence provisions.

Crypto Regulation on the Rise?

Spain’s action towards crypto-assets comes at a time when regulators across the globe are looking into crypto oversight. While it has been an uphill task to keep with these innovations, countries such as Japan and Singapore are quite ahead in implementing crypto regulations.

This first-mover advantage has placed Asia on the map as a leader in the digital asset ecosystem. China, which, previously banned crypto activity, has piloted its own CBDC, could this be another ‘regulatory’ perspective? It depends on which side of the table one sits on when it comes to decentralization.

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Author: Edwin Munyui

China’s National People’s Congress (NPC) Suggests a Government-Backed Blockchain Fund

The National People’s Congress (NPC) in China has proposed the creation of a government-backed blockchain fund in its ongoing annual meeting.

The Chinese legislative body began consultative meetings last week as part of its political advisory role. According to its Deputy Director, Jieqin Tan, a blockchain fund would help spur growth in the industry.

This milestone comes shortly after the People’s Political Consultative Conference (PPC), during which a regional stablecoin was proposed. Basically, the PPC operates as a lower legislative body compared to the NPC; proposals tabled by delegates of the latter are more weighty and likely to be considered.

However, going by the recent blockchain and crypto sunrise wave in China, a regional stablecoin would not be completely out of the picture.

The Government Blockchain Fund Proposal

Jieqin Tan suggested that the blockchain fund could be steered by the Chinese government. Once up and running, the fund would focus on nurturing innovations within the blockchain space. More especially, unicorns and startups with a promising outlook given the current state of blockchain integration and emerging challenges.

Should this initiative be successful, Tan is optimistic that it will improve China’s odds in capitalizing on a first-mover advantage. In addition, blockchain tech has the potential to push China’s oversight towards ‘smart governance’.

Tan, therefore, thinks that funding and supporting the industry would increase the security and sovereignty of the Chinese people. In his view, the industry should be consolidated based on a three-dimensional strategic plan:

“From the bottom technology standard, middle industry application development to the top-level system design, the national blockchain technology, industry and supervision three-dimensional strategic planning system should be well coordinated.”

Despite touting the proposal as a good initiative, Tan was keen to highlight that blockchain tech has had its fair share of challenges. Particularly, scaling issues have emerged as more players join existing ecosystems. Furthermore, the industry is still short of talent and operates on a huge knowledge gap making it hard for information to be impactful.

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Author: Edwin Munyui

Iranian Parliament Proposes to Regulate Cryptocurrencies Under ‘Currency Smuggling’ Laws

The Iranian parliament has proposed to regulate cryptocurrency exchanges and digital currencies under the existing ‘foreign currency exchange’ regulations and ‘money smuggling’ laws, reported a local daily.

If the proposal is passed in the form of a law, then crypto exchanges would be required to obtain a license from the Central Bank of Iran just like foreign exchanges. This could especially turn problematic for a new emerging industry like crypto and might discourage budding startups and entrepreneurs due to fear of arrests and even sanctions from the United States.

The sudden decision by the government to heavily regulate the crypto industry could be motivated by the falling prices of the national currency due to hyperinflation and it appears that the government is trying to keep a check on the capital outflow.

Not so long ago the Iranian government looked bullish towards crypto industry and there were rumors that the government might be looking to launch a central bank-issued digital currency as well. Many believed cryptocurrency would be the saviour of the Iranian economy which has been in shambles due to numerous sanctions put by the USA.

While the proposal is on the table, it is still unclear how the government plans to regulate crypto exchanges based on rules formulated for the fiat system. The other factor that might make it even more complex is the fact that a majority of the Iranian crypto exchanges are legally based out of foreign countries.

For example, UtByte and the KingMoney token project which are clearly funded by Iranian businessman and meant to cater to the Iranian public are registered in Sweden. A couple of media outlets have flagged the two projects as a scam, despite that it is aimed at aiding Iranians in cross-border transactions.

While these foreign-based exchanges find a way around the new rules, the local small time businesses and startups would be the worst hit if these regulations are put in place.

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Author: James W

Crypto Lender Dharma Becomes First App to Submit A Compound Improvement Proposal

Dharma, one of the leading Decentralized Finance platform has proposed new upgrades to its cDai interest rate model under its Compound improvement model for better user experience.

In a blog post published on 27th April, Dharma claimed that the new changes would ease the burden on capital suppliers without impacting the interest of borrowers.

In its blog post, Dharma claimed that its existing Dai interest model at the time of development did not take into consideration several factors like the Stability Fee (SF) and Dai Savings Rate (DSR) in the existing MakerDAO’s Multi-Collateral Dai (MCD) system for a prolonged period of time.

Thus, the current zero interest rate model is causing a lot of issues and does not offer a good user experience for the capital suppliers when SF and DSR are kept at zero.

As a result, capital suppliers make zero profits until capital utilization is above 90%. Even when capital utilization is above 90% these rates fluctuate widely.

How Does The Decentralized Collateral Model Works?

Decentralized Finances work on top of the Ethereum blockchain, where DAI (non-asset backed stablecoin) is the primary fuel. A user can put their ETH in a smart contract as collateral and draw an equivalent amount in Dai.

Now the user can utilize Dai as per their wish and whenever they want to withdraw their collateralized ETH, all they need to do is pay back the loaned Dai along with the interest rate.

This mechanism also helps in keeping the value of Dai at $1 despite not backed by the actual US Dollar itself. This is done through the dynamic interest rate system created by MakerDao called Target Rate Feedback Mechanism (TRFM) where, if the inflation leads to an increase in the value of Dai above $1, the interest rate is lowered and vice versa. This system aims to keep the value of Dai stable at all the times and equivalent to $1 USD.

How Do These Proposed Changes Benefit Capital Supplier

The proposed changes to the cDai interest system offer a modest interest rate to capital suppliers when the interest rates are below 90%, and as the interest rates are greater than 90%, the interest volatility slightly decreases.

When the Dai saving rates were set to zero, the plotted graph looked like the following chart:

While the proposed changes to the rates would make the graph look something like the following chart:

Decentralized Finance has been seen as a revolutionary use case for decentralized cryptocurrency financial system and also achieved the milestone of $1 billion locked in collectivized assets.

However, 2020 turned out to be a nightmare not just for the mainstream crypto space, but even for the Defi ecosystem which suffered from numerous hacks in recent times, the most recent being DForce.

DForce, in particular saw the loss of $25 million locked in collateralized assets. However, it later turned out that the hacker was trolling the network as they returned all of $25 million stolen assets the very next day.

Similarly, the black Thursday crypto market crash also exposed several flaws of the De-Fi ecosystem when the price of major crypto assets fell by 50%, which led to several thousand Colleralized debt Position (CDP) being partially or fully liquidated.

This caused investors to lose millions and they were miffed since MakerDao has advertised that if the value of the collateral fall by 13%, the collateralized asset would be returned to the investor with a max 13% penalty cut.

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Author: Rebecca Asseh