Regulation Of Blockchain Business – A Jurisdiction Comparison

Although the sector is growing rapidly, blockchain-related businesses are still largely unregulated in most countries. Sadly, in some circles, the use of cryptocurrency is still perceived as a mechanism or tool to facilitate criminal activity. Traditional businesses are therefore extremely apprehensive and often unwilling to provide services to persons involved in cryptocurrencies. As a result, in order to prove their credibility, many blockchain-related businesses are seeking regulation.

You may have read numerous articles comparing the various crypto-friendly countries and noticed the same names keep cropping up. The purpose of this article, therefore, is to explore the positions that different jurisdictions are taking, providing an overview of the top jurisdictions you should consider when deciding where to incorporate your blockchain business.

Much of the world is still generally unreceptive when it comes to cryptocurrencies and blockchain companies. The approach by some jurisdictions to Initial Coin Offerings (ICOs) or Token Sales, is particularly hostile. Therefore, when considering which jurisdiction works best for you and your business, one of your top priorities should be to find a jurisdiction that can provide some certainty in an uncertain environment.

Below is a list of some the more popular jurisdictions currently attracting the most attention from blockchain businesses, detailing their regulatory environments and other key factors:

USA

Not only do many prominent crypto exchanges operate from within the United States, the U.S. is easily one of the most advanced countries in terms of cryptocurrency adoption with many stores readily accepting cryptocurrencies. The U.S. also boasts more cryptocurrency ATMs than anywhere else in the world.

Plus, the U.S. is one of the most regulated countries for cryptocurrency-related businesses. The complexity of the U.S. regulation is a result of the existing two-level system of governance: at both federal and state levels.

One of the U.S. federal financial regulators and the Financial Intelligence Unit - FinCEN - addressed the status of cryptocurrencies under the U.S. Bank Secrecy Act (BSA) and its implementing regulations in 2013, stating it would be no difference between real currencies and crypto (virtual) currencies while determining a business is a regulated money services business (MSB).

Since then, a number of obligations are imposed on cryptocurrency-related businesses as MSBs. In particular, the obligation to register with FinCEN; to designate a compliance officer; to develop and implement internal policies, procedures, and controls; to perform ongoing employee AML training, and to perform independent BSA/AML audit.

Apart from FinCEN, other regulators focus on issues raised by cryptocurrency, too. Approaches to virtual currency differ from agency-to-agency. For example, the U.S. Internal Revenue Service defines cryptocurrency as property for tax purposes. The U.S. Commodity Futures Trading Commission (CFTC) states that cryptocurrencies are commodities and subject to the CFTC's jurisdiction.

The position in the U.S. regarding ICOs or Token Sales is extremely uncertain. There is no comprehensive guidance from the Securities and Exchange Commission (SEC) although they have made several statements over the last twelve months or so regarding the activity of raising funds via an ICO or Token Sale. Whilst they take the view that certain cryptocurrencies, such as Bitcoin, for example, should not be deemed 'securities' they have indicated that most tokens sold by issuers as part of an ICO or Token Sale process would be deemed 'securities'. The SEC do not focus on the characteristics or utility of the token but instead on the reasons why participants are purchasing such tokens and whether or not participants could reasonably expect the value of the tokens to increase in value. Numerous subpoenas have been issued and there is an ongoing investigation into many ICOs with connections to the US.

On the lower level, each state either develops specific rules for cryptocurrency-related businesses (BitLicense in New York), applies existing money transmitters' rules for cryptocurrency exchanges (Florida), or provides an exemption from such rules (Tennessee). Besides, some states are still evaluating the sphere and currently take no position (Utah).

Mexico

Mexico is currently exploring the regulation of cryptocurrency exchanges. There are a number of exchanges already operating from Mexico and, in March of this year, a bill to regulate cryptocurrencies was approved.

It is understood that the National Banking and Securities Commission, the central bank and the finance ministry will soon begin drafting secondary laws which will determine the details for companies in the sector and it is further understood that the main...