As is known, the status of the bank, as well as other financial organizations requires obtaining the appropriate license in all regulated jurisdictions.
However, most early crypto banks did not have them, so this name was used only to improve image and trust, rather than using “by law”. Such platforms only imitated banking functions, in fact, being specialized investment funds, payment organizations EMI (Electronic Money Institution), or trading crypto platforms.
Taking into consideration the wave of large frauds and “Ponzi” schemes on the crypto market in 2017-2019, the international community and regulators today adhere to the strategy of creating a regulated corridor, in compliance with all modern requirements of financial security and compliance with AML/FT rules.
This is evidenced by the large array of legislative measures that most progressive jurisdictions developed between 2020 and 2021, and this process is still ongoing.
All these changes can be reduced to 3 understandable approaches to the regulation of the crypto market: “Impossible”; “It is possible, but not known how” and “It is possible and regulation is formed as”.
Therefore, the market is moving faster than most legislators creating legally permissible circumventions of legal and business solutions for the positioning of crypto banks. It can be an alternative financial or FinTech license, or so on. CoFi is an affiliate program with traditional financial institutions and partner banks.Lockton Bank chooses a clear and regulated jurisdiction with an open and up-to-date policy regarding the regulation of virtual assets. This makes it possible to officially implement a fiat gateway solution for handling crypto-assets and fiat funds.
Let’s overview the main legal and organizational developments in different jurisdictions.
The past five years had been a period of active regulatory transformation of the digital asset market. FATF (Financial Action Task Force on Money Laundering) is the main “trendsetter” of key legal changes in this sphere.
The organization developed a Guidance on the so-called “virtual assets”, which provided key definitions and potential risks of AML/FT. Its provisions had been implemented in the legislation of most of the world’s leading jurisdictions. FATF continues to develop supplements and new guidelines on the subject, thereby creating universal regulatory guidelines for different jurisdictions and global harmonization of those processes.
Currently, the regulatory basis for the crypto sphere consists of three main groups of issues: licensing requirements for companies, compliance (KYC/AML/FT), and the ability of banks to service fiat operations for the project.
Current international practice suggests that the State regulator could be an authority responsible stock market (the Securities Commission), the Central Bank (or its analogs), or their cooperation.
On the above mentioned basis, the regulatory component is formed. The most balanced solution is the combination of the interaction of these authorities, which leads to the absence of inflection in one direction or another. There are examples of jurisdictions with a high reputation component where the actions of a single regulator have led to the formation of a non-viable or uncomfortable situation.
A case in point is the United States, where the Securities and Exchange Commission (SEC), through an intensive restrictive policy, had a major impact on the development of crypto projects, hindering the development of the market.
Just as illustrative is the example of the UAE, where the local banking environment completely ignores any interaction with crypto assets, even if for licensed local crypto companies.
Increasing loyalty to the digital asset market in these jurisdictions is just a matter of time.
However, a number of jurisdictions have already managed to attract a significant number of large crypto projects:
which is rightly considered one of the largest financial centers in the world. Digital companies must be licensed by the Monetary Authority of Singapore (MAS). Singapore hosts the headquarters of such projects as Litecoin, TenX, CoinGecko, Unicsoft, and others.
is the home of “Crypto Valley” in Zug, where there is a number of significant blockchain projects, in particular Ethereum Foundation, Crypto Valley Association, and Bitcoin Suisse.
The issue and public offering of tokens must be registered in The Swiss Financial Market Supervisory Authority (FINMA). Swiss law also requires mandatory KYC/AML procedures.
Switzerland is one of the leading countries in the practical application of blockchain technologies and cryptocurrency turnover. There are many ways to make payments with crypto including for taxes. Meanwhile, the Swiss authorities intend to further promote the use of digital assets and the integration of blockchain technologies. Several Swiss banks, such as Falcon Private Bank and Julius Baer, allow direct transfers and deposits with cryptocurrencies.
The German Federal Financial Supervisory Authority (BaFin) classifies digital assets as financial instruments, and tokens issued for fundraising purposes – as securities. In September 2019, the German government adopted a national strategy to support the development of blockchain technology in the country. In 2019, Solarisbank and Bankhaus von der Heydt provided the opportunity for their users to conduct transactions in crypto assets. Since 2020, trading platforms for institutional investors have been operating: Boerse Stuttgart Digital Exchange and Bankhaus Scheich. Germany also operates specialized crypto banks, which are designed for private investors, such as Bison and Bitwala.
At the same time, a number of European countries have introduced the practice of separate licenses operating in the crypto segment, as well as implemented FATF recommendations on mandatory KYC/AML procedures. In addition, favorable tax regimes and loyal policies towards digital assets in countries such as Estonia and Gibraltar have enabled the incorporation of projects such as Augur, CoinMetro, and Exscudo.
- Thus, the strategy to increase transparency and to select a regulated status for significant projects is trended. In particular, the world’s largest crypto exchange Binance between 2021 and 2022 placed its headquarters in Bahrain and obtained a license that allows the crypto exchange to operate the entire range of financial products.