Kristina Nemchinova: The time of crypto freedom is coming to an end
How to choose a jurisdiction when registering a crypto company, what crypto regulation is needed in Ukraine and how the FATF will affect the fate of anonymous coins, told Christina Nemchinova, co-founder of Brightman legal fin-tech consulting, in an interview for LetKnow.News.
- How has the attitude of regulators to the cryptocurrency market changed in recent years?
- There used to be Wild West in this area, now there is a tendency to regulate the market of digital assets and cryptocurrencies. We can see this trend in reputable jurisdictions that are traditionally considered to be serious and dangerous for those who do not comply with the laws. We are talking about the United States, Britain and many European and Asian countries, which nevertheless come to the conclusion that cryptocurrencies need to be regulated. In addition, recommendations appear, for example, from the FATF on AML /KYC compliance and everything related to securities law and taxation. There are more specific requirements for filing tax returns for investors who invest in cryptocurrencies and who pay taxes on them.
- What jurisdictions are most acceptable for the registration of crypto companies and the emission of security tokens?
- We, as lawyers, recommend choosing more regulated jurisdictions, because there is a clear position of the regulator, accordingly, we understand how and what rules to apply to a particular project.
If we are talking about the release of security tokens, then it’s, of course, the USA, the UK, Switzerland, Liechtenstein and Luxembourg. In addition, in the EU there is the opportunity to emit utilitarian tokens, because in the USA, for example, the position of the regulator on this issue is clear: all tokens are securities. Although there was a precedent when the SEC allowed the issuance of utility tokens, it’s decided on a case by case basis.
- What are the criteria for choosing a jurisdiction to register a crypto business?
- First of all, you need to make sure there is the absence of direct prohibitions and criminal liability for the cryptocurrencies usage. Then you should pay attention to the recommendations of the FATF or BEPS on AML/KYC compliance. The position of the regulator regarding obtaining licenses for conducting such a business is also important. The attitude of banks in this area is also important, since the question of opening bank accounts for the crypto business is traditionally considered one of the most difficult. In addition, it is necessary to check whether the state has entered the US sanctions business, since adequate investors (i.e. American) will simply not go to such jurisdictions. The matter of taxation is also important: make sure that you will not pay crazy taxes when doing business in a particular country.
- What conditions are necessary to create a regulatory framework for the cryptocurrency market in Ukraine?
- Last year, Ukraine actively drafted laws regulating the status of digital assets. Our company also participated in that process. I think that for our country today the issue of attracting investments is a priority. Therefore, creating legislation that would simplify the launch of crypto business in our country, with adequate taxation and a clear explanation of how to conduct accounting, as well as, possibly, the introduction of benefits or a simplified procedure for obtaining licenses and permits would be a right thing to do.
Nevertheless, there should still be some regulation, since its absence only unties the hands of state bodies or discourages investors.
- “However, not all jurisdictions benefit from crypto regulation.” For example, large investments have not entered Belarus.
- In Belarus there are problems of a different nature, and investors do not want to go there for other reasons, including political ones. Despite the fact that the legislative framework in the field of cryptocurrency turned out to be very good. However, the decision of investors is affected by the political climate and the lack of judicial reform.
It is clear that one law on the regulation of cryptocurrencies will not change the situation if comprehensive reforms are not carried out.
- The FATF has actively taken on the crypto industry. And some cryptocurrency exchanges have already begun to delist anonymous currencies. In your opinion, what fate awaits coins to ensure privacy?
- There are two possible scenarios. Either cryptocurrencies remain decentralised and anonymous, and regulatory chaos continues. Or this area will be regulated, and cryptocurrencies will lose their anonymity and decentralisation, in other words, the very reason for their creation. And here you have to choose the lesser of two evils.
I believe that it is much more important for the platform to comply with all legal requirements, including AML/KYC standards. Also, whether we want it or not, taxes should be paid on that type of activity. Regulators should have a clear position on licensing so that crypto start-ups do not have to obtain licenses similar to banks and financial institutions and don’t have to bring 750,000 euros of registered capital, since the crypto business in some countries uses the same rules as investment funds, for example. For sake of all that, you will have to sacrifice anonymity, unfortunately or fortunately. This will primarily protect the interests of investors.
- What caused regulators' concern over the announcement of the Libra release?
- The governments of the EU countries are concerned that Libra directly threatens the financial stability of states and in a certain way will undermine their sovereignty. Among other things, regulators express dissatisfaction with the fact that Facebook will turn into a kind of shadow bank with its own currency. There are also questions about Libra regarding a possible violation of EU antitrust laws and user data processing. Let’s wait and see how it all ends.
- The European Commission created an organisation of developers of decentralised applications, the goal of which is to create standards for the crypto industry. How important is standardisation for the industry?
- I am solely for having a common understanding in the EU on how to regulate activities related to cryptocurrencies. In different states it varies. It especially complicates the process of business structuring.
At the AML / KYC level, there should definitely be a common approach, and now it is centralised to one degree or another. Often, projects violate the law not intentionally, but solely because of a lack of a consolidated approach. A vivid example of that is the lawyers’ conclusions regarding the nature of a
token. For listing on the exchange, as you know, it is necessary to conclude that the token is or is not a security. Here fantasy is often used, and at the same time it remains incomprehensible how the regulator interprets all that.
In the UK, for example, it is planned to adopt specific legislation on the regulation of cryptocurrencies. And in connection with Brexit, we can assume that it will be, so to speak, an exception in the widespread pattern. It may be an interesting precedent.
As for the notorious Malta, it turned out that just passing laws is not enough. No by-laws regulating, for example, requirements for the authorised capital during registration of a crypto-company have been adopted. However, after the adoption of high-profile laws, many projects rushed to Malta, which led to bureaucratic chaos and queues for licenses.
- What trends in crypto regulation shall we see in the near future?
- I think that everything is moving towards the fact that in many countries regulators will increasingly apply sanctions to projects violating the rules. Since if the regulator used to give a certain carte blanche for a guilty plea or assistance to the authorities, now investigations are being carried out more often, and the perpetrators are being held accountable. The number of such cases will increase, and fines will begin to grow. So the time of crypto liberty is coming to an end.