US Tax Authorities Discusses Taxing Digital Currencies; Each Standard Method Has Trade-Offs

  • Tax regulators across the U.S. are debating on the trade-offs in taxing digital assets, Bloomberg Law states.
  • Erika Nijenhuis, a senior counsel at the department’s tax policy office, said at a virtual conference on Thursday.

The world’s largest economy is looking for ways to increase revenues, including taxation of digital assets and cryptocurrencies. During a virtual interview at the OECD’s 2020 Global Blockchain Policy Forum, senior counsel at the Treasury Department, Erika Nijenhuis, stated the U.S is developing domestic reporting rules on taxing cryptocurrencies.

In their quest to find the best models, the tax regulators are debating different tradeoffs that proposed tax models offer, including the risk factor approach and the direct reporting of tax from crypto transactions.

The authorities are looking for a balance that will be efficient in collecting the tax proceeds. This ranges from checking the burden placed on the crypto-taxable parties such as crypto money transmitters and exchanges and how to enhance compliance across these firms. Nijenhuis said,

“There are trade-offs among all of them, and we are hard at work thinking about all of those issues.”

“None of those are easy questions.”

The U.S. Internal Revenue Service (IRS) has been at the forefront of taxing crypto assets in calling for clarity on taxing these assets.

Earlier in the month, David W. Klasing, a boutique Californian tax firm, reported that the IRS looked into Coinbase accounts to catch offenders who do not comply with the platform’s reporting tax standards.

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Author: Lujan Odera

Court Enforces Seizure of Korean Crypto Exchange Bithumb’s Shares

South Korean regulators have seized the share of the local cryptocurrency exchange Bithumb from its major investor. The move has been in connection with an ongoing case of the exchange for allegedly defrauding its clients, reported local media.

The company’s director Kim Byung-Geon had his holdings in the exchange seized on the decision of the Seoul Central District Court on Sept. 14.

Kim was earlier sued in the process of unsuccessfully trying to acquire Bithumb. He also filed an application for the seizure of the share of the majority shareholder, Chairman Lee Jung-Hoon.

The seizure was executed today at the Bithumb Korea Office in Gangnam-gu and overseen by accounting firm Samjong KPMG. Earlier this month, the firm filed a Letter of Intent (LOI) that it plans to sell its own share in Bithumb Holdings and will be sharing a shortlist soon.

Bithumb is currently under investigation for allegedly selling BXA tokens for 30 billion won (about $25 million) but failed to do so, which resulted in investors incurring huge losses. The exchange has already been raided twice by the police this month.

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Author: AnTy

BitMEX Mandating KYC by Feb 2021, Not Bad for Crypto Market

Crypto derivatives exchange BitMEX now seems to be feeling the pressure of regulators as it announces mandatory know-your-customer (KYC) measures to “meet evolving international regulatory standards.”

Starting August 28, 2020, all BitMEX customers will be required to complete their ID checks within the next six months.

As per the User Verification Program, a user has to go through a four-step process, much like other cryptocurrency exchanges, that includes uploading a photo ID and proof of address, a selfie, and answering “a few multiple-choice questions about the source of funds and trading experience.”

With this move, the exchange says, they will be able to “create a more trusted and secure trading environment for all BitMEX users.”

Crypto trader DonAlt feels the same as he said it is “part of growing up,” and “all of the crypto will soon be KYC’d.” BitMEX also has “to do it at some point.”

It wasn’t shocking given the increased scrutiny the crypto space has been getting from regulators, who have already been probing into BitMEX for the past year.

“Whales are in all likelihood already KYCed. No reason to panic,” said trader and economist Alex Kruger. But because “Bitmex funding is flat which means longs and shorts are rather balanced. This matters in the event of unwinds.”

Moreover, this will help the industry as a whole, including the customers and new business entrants.

“I wouldn’t say that’s necessarily bad, just means shady stuff decreases while legit stuff (hopefully) increases,” said DonAlt.

Fellow crypto trader CryptoGainz is of similar opinion as the move by BitMEX will even the playing ground “in favor of newer exchanges building relationships with retail and offering favorable rates.”

However, the exchange has been losing its ground in the industry ever since the March sell-off as it saw its web traffic and BTC balance declining.

To soothe the sting of getting KYC’d, the exchange said it would also be launching a Trading Tournament with “sizable prizes.” Still, of course, only those that have completed verification will be eligible to compete.

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Author: AnTy

EU Parliamentary Report on Crypto Oversight Suggests Stricter Measures than 5AMLD

  • The European Parliamentary Research Service has suggested that its regulators should further enhance the Fifth Anti-Money Laundering Directive for more efficiency on crypto regulation.
  • According to a study done by the researchers, the laws should be expanded to accommodate the various upcoming entities within this industry.
  • It also highlighted the risk pegged to financial institutions participating in crypto markets while investors are not well vast with the digital assets.

The EU parliament has been quite progressive in defining crypto legally compared to the global pace. This body adopted the current 5AMLD crypto governing infrastructure back in 2018. At the time, they were moving to enforce stricter KYC/AML laws to curb illegal activities within the crypto markets.

Crypto exchanges and custodial providers were ultimately required to comply with the set-out KYC rules through compliance and collaboration with the mandated regulators. Following the recent developments in crypto, a new report now suggests the region ought to much-advanced standards such as the FATF. The report reads,

“To bring the European AML/CFT framework up to speed with the current reality in the crypto-space, the EU could consider a number of regulatory actions,”

Outlining Exposure risk on Crypto Investments

Cryptocurrencies are known to be highly volatile given the history of price shifts in this market. Notably, the digital assets are also not compatible with traditional finance laws despite close proximity to existing financial markets. The researchers from EU’s parliament have since suggested a more transparent approach by the financial institutions operating crypto portfolios,

“Crypto-assets that do not qualify as MiFID II financial instruments, nor EMD2 electronic money, and hence, escape all EU financial regulation, the EU should, at the very least, put appropriate risk disclosure requirements in place, so that investors and/or consumers can be made aware of the potential risks prior to committing funds to these crypto-assets,”

The report goes on to further highlight that a conservative prudential approach would eliminate digital assets from the funds of financial intermediaries. This is mainly because of the risk exposure attributed to crypto. According to the report, incorporating digital assets into EU banks’ balance sheets could cause enormous losses should the market plummet significantly.

Scale the Regulatory Scope

The report also recommends an update of the AML/CFT framework in a bid to cover more areas within crypto innovation. Given the rise in private tokens, crypto-to-crypto exchanges and financial institutions launching ICOs, the researchers have suggested a focus on entities in this niche for better AML practices.

On the issue of crypto mining, the report says that malicious actors can comfortably leverage the ease of joining this industry for illegal activities,

“Nowadays, coins have emerged that do not always require big energy-consuming server farms to mine, but that can be mined running a few hardware rigs at home,”

This presents an opportunity for the criminal actors to clean their money since all newly mined crypto coins are by definition ‘clean’. However, the EU’s parliament could eliminate this shortcoming based on the report,

“A first regulatory step could be to try to map the use of this technique and subsequently, if it effectively proves an important blind spot, to consider appropriate counter measures.”

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Author: Edwin Munyui

French Financial Watchdog Largely Agrees With EU’s Crypto Proposal But Remains Cautious

Major stock markets regulators in France the Financial Markets Authority (AMF) have issued its official stance on crypto-assets as well as regulations in regards to the recently released European Commission’s consultation. Although the regulator agrees that an ambitious approach will help in spurring innovation, the report pinpoints that global stablecoins pose a major threat to the global financial system.

The EU Commision has been formulating a single policy on the use of virtual finance in the European Union which also deals with the various risks that come with digital money. To further this idea, the Commission came up with a public consultation platform which started Dec 19, 2019 and ended on March 19, 2020. The aim of the consultation process was to come up with an acceptable legal framework to guide the crypto asset markets.

According to Cointelegraph, the response from the AMF mostly agrees with most of the proposals by the consulting team and advocates for a friendly environment to enhance the thriving of blockchain projects within the EU. However, AMF urges caution when it comes to stablecoins.

The response by the AMF wages on the definition of crypto-assets with the regulator stating that crypto assets should be classified using the current categories so as to differentiate the crypto assets which can be said to be financial instruments and the ones which are not.

The report also indicates that most of the digital financial assets are in their infancy and as such it is not yet time to come up with a definite classification of the various crypto assets in the market. The report states that a crypto asset is any “digital asset that may depend on cryptography and exists on a distributed ledger.”

The response suggests that the EU should adopt specific provisions to deal with the stablecoins. The regulator states that stablecoins can lead to systemic risks within the EU block.

However, going by the French government’s reaction to the Libra project, the call for caution when it comes to global stablecoins is unsurprising.

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Author: Joseph Kibe

Hong Kong, Thai Central Banks Plan To Issue Joint Digital Currency For Cross Border Payments

  • Hong Kong and Thailand central banks the latest global regulators to announce plans on launching a central bank digital currency (CBDC).
  • The joint digital currency project will allow banks across the two countries to exchange funds.
  • Top central banks are gaining pace in plans of a CBDC.

According to an official joint press release from the Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BOT), the two institutions are working on a blockchain that enables efficient transactions between banks in the two countries. The announcement follows up on a 90-page report of the “Project Inthanon-LionRock”, a research on the findings on the possible launch of a joint CBDC between the two institutions.

The launch the Thai-Hong Kong cross-border payment will allow participating banks to transfer funds and settle transactions on a peer-to peer basis. This reduces the overall transaction time and fees building an efficient system to settle in real-time in an “atomic payment-versus-payment manner.” Deputy Governor of the BOT, said,

“Building on pain points and business cases, the novel cross-border model is designed and developed as a Proof of Concept (PoC). The design and key findings of the project have added new dimensions to central bank communities’ studies on cross-border funds transfer area.”

THB-HKD cross-border corridor network prototype was completed in December 2019, and the current launch will be distributed to banks. Mr. Edmond Lau, Senior Executive Director of the HKMA on the launch of the CBDC report said,

“Our joint research project with the Bank of Thailand marks an important first step to solve the pain points of low efficiency and high costs in traditional cross-border payments.”

Hong Kong and Thailand become the latest regulators to focus on CBDCs following China’s PBoC’s announcement of a launch of a sovereign digital currency. Moreover, a consortium of top central banks in the world including the Bank of Japan (BOJ), Bank of England (BOE), Royal Bank of Canada and BIS among others came together to set up a commission earlier this week. The commission will assess the possible use and development of a central bank digital currency (CBDC) within their respective jurisdictions.

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Author: Lujan Odera

China Regulators Issue ‘Serious Warning’ On CryptoCurrencies; We Support Blockchain, Not Crypto

China is once again getting worried about the expansion of cryptocurrencies. Regulators have requested authorities to prevent the use of digital currencies by individuals in the country. This is according to a recently released announcement by the China Securities Regulatory Commission (CSRC). In this report, they talk about the risks related to cryptocurrencies and their influence in the financial market.

Chinese Authorities Worried About Crypto Expansion

In the aforementioned announcement, crypto trading activities, digital currency mortgage provision, and other services are a risk for the economy. At the same time, the expansion of crypto assets violates regulations established by the People’s Bank of China (PBoC).

Regulators in Beijing have already called local authorities to combat and fight against these activities that are expanding in the market. China has mostly been against digital assets and their different use cases. Back in 2017, China banned cryptocurrency trading activities causing the whole market to drop.

In addition to that, the Chinese government stated that individuals and institutions cannot be involved in the sale of cryptocurrencies nor invest in them. Users and companies cannot perform transactions or trade digital currencies.

Other countries such as South Korea have also decided to ban Initial Coin Offerings (ICOs) as well. This has also affected the whole ecosystem at the end of 2017 when blockchain projects were expanding in the space.

Despite China’s negative stance towards digital assets and the industry, the government has shown interest in distributed ledger technology (DLT) and how it could be used to improve the economy and its efficiency. However, they stated at that time that their support to blockchain technology shouldn’t be considered an endorsement to cryptocurrencies.

Some reports were also suggesting that miners could also be affected by a government ban. Regarding this issue, a finalized version of the list of industrial activities that the country was planning to eliminate shows that banning Bitcoin mining was not included in their plans.

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Author: Carl T

SEC Clayton: Agency Has Taken A ‘Measured But Proactive’ Approach To Crypto Regulation

The chairman of US Securities and Exchange Commission (SEC) has explained that the US regulators are taking measured approach when it comes to crypto regulation that is helpful to both individual and institutional investors, Cointelegraph reports.

The SEC chair, Jay Clayton, made the remarks when he updated the US Senate committee on Banking on the regulator’s policy when it comes to blockchain and cryptocurrencies. Clayton said,

“As I have previously stated, I am optimistic that developments in distributed ledger technology can help facilitate capital formation, providing promising investment opportunities for both institutional and Main Street investors,”

“Overall, I believe we have taken a measured, yet proactive regulatory approach that both fosters innovation and capital formation while protecting our investors and our markets.”

Although Clayton claims that the SEC has undertaken a balanced view on cryptos, the regulator has come under scrutiny for some of the policies it has crafted in the recent past. The regulator has explained that various firms that had their initial coin offerings (ICOs) in the last two years are still under investigation. A good example of such a case involved Canadian firm Kik which almost led to the firm shutting down its operations in October.

Clayton was also asked about Facebook’s led Libra project which he explained that since the crypto was here it should be dealt with decisively. Clayton also indirectly stated that the regulator took action to block the sale of Telegram token which he said was unregistered in the US.

Early this month, Clayton was one of the regulators in the US who wrote a joint report advising the Federal Reserve on the possible challenges that might come with mass adoption of stablecoins and why the Fed should develop its own digital currency.

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Author: Joseph Kibe

German and South African Regulators Issue Fraud Warnings on Karatbars International

  • Financial regulators in both South Africa and Germany have issued orders against Karatbars International.

In Germany, according to a recent press release by BaFin, the Federal Financial Supervisory Authority of Germany, a cease and desist order has been issued against Karatbit. The cease and desist is to stop the company from its unauthorized electronic money business in Germany.

As for South Africa, the Financial Sector Conduct Authority issued its own press release warning the public to not deal with Karatbars International, as it is not authorized in terms of the Financial Advisory and Intermediary Services Act, to render any financial advice and intermediary services. The press release continues that the authority was informed that the company has been offering investments to customers through WhatsApp, a messaging platform.

A recent report indicates that these warnings are being issued as the company’s investors realize that they have been misled by the company. Further, the company had first offered cryptocurrency in February 2018.

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Author: Silvia A

Crypto Fund Managers in Hong Kong Have Been Stifled Due to Licensing Obstacles by the SFC

The securities regulators of Hong Kong started to let companies apply for a crypto fund license about a year ago, but not many licenses were issued so far. According to a recent report made by Reuters, the Securities and Futures Commission of the region is denying most of the applications, which is getting in the way of making cryptos mainstream in Hong Kong.

Initially, the regulators decided to start emitting licenses at the end of 2018. They would work as way for the markets to be protected from scams, as people would be able to check if a company was really licensed to operate in the country.

These licenses were among the first ones in the global scenario. They would allow managers to sell virtual assets for investors. Unfortunately, most companies are struggling to be approved, as the requirements are steep and the regulators do not seem to be satisfiable.

One of the main reasons why companies are having so much trouble to comply with the requirements is because they are mostly very small in both size and ambitions. It seems that the regulators predicted that only large funds would try to get the license, so they tailored the requirements for them.

In its report, Reuters identified a single company that was approved for a license: Diginex. The company operates a kind of “fund of funds”. The reason for that is because the approved companies are not publicly listed.

The CEO of Diginex, Richard Byworth, affirmed that the company believes that regulation is important in order to build a trustworthy relationship with the clients, which is why they did it as soon as possible.

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Author: John Isige