The State of Crypto Regulations and Laws in 2024

As the years pass, the realm of cryptocurrency regulation is progressively tightening its grip, reflecting a global trend towards increased oversight and control. The journey is slow and often leads to disagreements, which in turn poses a significant challenge for businesses in the crypto space to stay compliant, implement required crypto compliance solutions, and grasp all the emerging nuances.

Therefore, we’ve gathered the most important laws that are shaping the crypto landscape in 2024. We’ll focus on updates from different countries and areas, because it’s crucial for businesses to understand the various regulations they might face.

Let’s get started!

MiCA regulation

In May 2023, the European Union finalized the Markets in Crypto-Assets (MiCA) regulation, a pioneering framework set to be enforced by December 30, 2024. The legislation positions the EU as the first large jurisdiction to introduce comprehensive rules for the crypto market.

This cryptocurrency regulation targets a wide range of participants in the crypto ecosystem, including both natural and legal persons involved in crypto asset services, while specifically excluding fully decentralized services without intermediaries.

The framework distinguishes three primary categories of crypto assets:

1. Asset-referenced tokens (ARTs) that aim to maintain a stable value by being pegged to various assets

2. E-money tokens (EMTs) designed for transactions

3. Utility tokens that grant access to services within a DLT system

The regulation includes stablecoins as well, categorizing them under ARTs and EMTs, but it leaves out crypto assets without a clear issuer, NFTs, certain intragroup transactions, and digital assets issued by central banks or other specified financial instruments.

According to MiCA regulation, to operate within the EU, crypto asset service providers must obtain authorization from a member state, ensuring at least one EU-resident director. MiCA also mandates a comprehensive whitepaper for crypto assets, detailing their nature, risks, issuer information, project objectives, and technological underpinnings, with an emphasis on excluding unlikely risks. These documents must be accessible in an official language of the relevant EU state or a language prevalent in international finance, like English.

In addition to this, the cryptocurrency regulation underscores the environmental implications of crypto activities, advocating for greener consensus mechanisms. Issuers and providers must transparently disclose any significant environmental impacts, guided by the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) on sustainability reporting standards.

Non-compliance with MiCA entails various penalties, including:

• Administrative fines up to €5,000,000 for legal entities and €700,000 for individuals
• Periodic penalty payments imposed to prevent a person from continuing an infringement
• Supervision fees for significant crypto asset issuers

These measures reinforce the regulation’s comprehensive approach to fostering a secure, sustainable, and competitive crypto market within the EU.

SEC and crypto regulation

The U.S. Securities and Exchange Commission (SEC) oversees and regulates the securities industry, including nation’s stock and options exchanges, and other related activities and organizations.

This agency ensures investor protection, market fairness and efficiency, and capital formation. It also navigates complex debates over the classification of cryptocurrencies as securities or commodities.

With the advent of blockchain technology, the SEC’s approach to regulation has evolved, scrutinizing Initial Coin Offerings (ICOs) and token sales to determine if they meet the Howey Test’s criteria for securities.

Recent developments in 2024 have marked significant milestones for cryptocurrency regulation. The SEC’s approval of Bitcoin ETFs signifies a leap towards integrating cryptocurrencies into mainstream investment channels, fostering broader market participation and potentially stabilizing the volatile crypto market.

However, changes to the definition of “dealer” under SEC crypto regulations have raised concerns within the DeFi community, imposing stricter compliance requirements that some argue could slow down innovation and complicate adherence to securities laws.

The SEC’s enforcement actions reflect a cautious yet firm stance on maintaining regulatory oversight, with a focus on applying existing securities laws to crypto assets such as Securities Act of 1933, Securities Exchange Act of 1934, Investment Company Act of 1940, Investment Advisers Act of 1940, and Dodd-Frank Wall Street Reform and Consumer Protection Act.

Thus, the main issue for the SEC regarding crypto is deciding if they should be treated as securities. So far, the SEC hasn’t made a specific decision on this for all types of cryptocurrencies. SEC Commissioner Hester Peirce’s remarks at ETHDenver highlighted a perceived “enforcement-only mode,” advocating for clearer crypto regulations to guide the industry’s growth.

SEC regulators now face the difficult task of creating laws that would protect the innovative and decentralized nature of cryptocurrencies while simultaneously reducing any associated risks.

Travel Rule

Established by the Financial Action Task Force (FATF) and updated in 2019, the Travel Rule expanded to include virtual asset service providers (VASPs). This action introduces an additional layer of compliance for entities in the cryptocurrency and DeFi sectors.

The Travel Rule now sets a 1,000 USD/EUR threshold for crypto transactions. Beyond this limit, VASPs must share transaction details like wallet addresses and the identities of both sender and receiver. Additional information, including account numbers and national identity details, is required for larger transfers.

The rule, aimed at preventing money laundering and terrorism financing, applies to transactions between VASPs and other regulated entities but exempts deals involving non-regulated wallets. By requiring detailed transaction data, it enables authorities to identify and act against suspicious financial activities.

Compliance with the Travel Rule necessitates robust data collection and sharing solutions, alongside a strong risk management policy. The FATF permits flexibility in the choice of technology for these purposes, encouraging encryption for secure data transmission. Essential to compliance are KYC processes and the adoption of automated tools for customer verification, transaction monitoring, and ensuring data security, in line with global data protection standards.

Basel III requirements for crypto

Prompted by the financial crisis of 2007-2008 and its exposure of flaws in banking rules, the Basel Committee on Banking Supervision (BCBS) developed Basel III, built upon its predecessors, Basel I and II. This framework focuses on improving banks’ resilience to financial and economic stress, emphasizing transparency and better risk management.

Adopted by the G20 and nearly all OECD countries, Basel III establishes a global standard for banking regulation. However, its application can vary from one country to another, depending on their specific banking systems and regulations.

At its core, Basel III mandates increased quality and quantity of bank capital, introducing higher minimum capital ratios and buffers to ensure that banks can withstand periods of stress. It emphasizes countercyclical measures to guard against systemic risks arising from excessive credit growth. Plus, it introduces liquidity ratios like the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) to ensure banks maintain sufficient liquidity under stress scenarios.

In response to the growing impact of crypto assets on the financial landscape, Basel III expanded its framework in 2022 to include prudential standards for banks’ exposures to crypto assets.

This new standard categorizes crypto assets into two groups:

1. Tokenized assets and those with stabilization mechanisms

2. Crypto assets that fail classification conditions and pose higher risks

It also says that banks must now manage infrastructure risks in crypto assets more flexibly, with the ability to adjust risk add-ons as needed. Stablecoins must pass a redemption risk test and be backed by entities with strong regulations to qualify for Group 1. Group 2 crypto assets are capped at 1% of a bank’s Tier 1 capital, with a new 2% threshold introducing stricter crypto regulations. The framework also sets detailed requirements for managing operational risks, liquidity, and leverage in crypto asset exposures.

Furthermore, the BCBS has committed to ongoing oversight and adaptation of the crypto asset standard to keep pace with market evolution. This includes exploring statistical methods for identifying low-risk stablecoins, assessing risks associated with permissionless blockchains, and adjusting exposure limits as necessary.

CARF and DAC8 proposal

The Crypto-Asset Reporting Framework (CARF) led by the Organisation for Economic Co-operation and Development (OECD) introduces a global system for sharing information on cryptocurrency transactions, aiming to streamline reporting for taxpayers and authorities alike.

By standardizing data collection and exchange, the framework mandates crypto exchanges and other providers to report user activities, enhancing transparency and fairness.

Cryptocurrency exchange development services providers should clearly understand how the CARF defines crypto assets. It categorizes them into payment tokens like Bitcoin, security tokens linked to real-world assets, and utility tokens for services or platforms. It focuses on fungible assets for tax information collection, excluding unique NFTs from its immediate scope. However, high-value NFT transactions may still draw tax attention.

Under CARF, traditional crypto trades, peer-to-peer exchanges, certain transfers, staking, lending, airdrops, and forks are reportable, with the specifics of these transactions shaping the tax reporting landscape. This includes both immediate trades and future contracts, with an emphasis on capturing a wide array of crypto-related income for taxation.

Implementation timelines for the framework vary, with some countries targeting 2027. The framework’s future impact is expected to be significant in areas such as fairness, crime prevention, trust building, tax revenue, and market maturity.

The OECD’s initiative is complemented by the EU’s DAC8 proposal, which strives for greater transparency in crypto transactions with similar objectives to CARF.

Despite sharing core goals, DAC8 and CARF have distinct features:

• DAC8 is applicable only to EU member states, whereas the CARF has global applicability
• For DAC8, the reporting entities are сrypto asset service providers (CASPs), while CARF includes a broader range of financial institutions, encompassing CASPs as well
• The information reported under DAC8 is balances, identity, and residence information of the parties involved. In contrast, the CARF requires similar information but may also demand details about the transactions themselves
• All EU member states must incorporate DAC8 into national law by December 31, 2025, with crypto asset service providers adhering to its reporting requirements starting January 1, 2026. The implementation timeline for CARF, however, varies by country
• DAC8 aligns with MiCA crypto regulations for crypto assets. The CARF, on the other hand, focuses on establishing a common standard for crypto asset reporting worldwide

What else you need to know: crypto regulation news across countries

Let’s delve into the latest crypto regulation news from across the globe, highlighting significant developments in the UK, Australia, the UAE, South Korea, and Hong Kong.

In October 2023, the U.K. government unveiled the “Future Financial Services Regulatory Regime for Cryptoassets,” marking the completion of its framework for cryptocurrency regulation.

The document emphasized a phased approach to integrating the crypto ecosystem into traditional financial oversight. Beginning with legislation for fiat-backed stablecoins set to be introduced in 2024, the framework plans to extend regulation to other crypto domains, including algorithmic stablecoins, lending, and trading. This comprehensive strategy will place activities under the supervision of the Financial Conduct Authority (FCA).

Further detailing the regulatory scope, the government clarified that the new rules would not encompass crypto assets already recognized as traditional financial instruments, nor unique NFTs viewed as collectibles or artwork. However, NFTs acting as exchange tokens could be regulated in the future.

The document acknowledges that while the DeFi sector is presently small in size, its potential impact on financial services is significant as the crypto industry expands and blockchain technology gains traction within financial markets.

Thus, the government intends to support innovation and will not ban DeFi.

Australia

In October 2023, the Australian Federal Treasury published the “Regulating Digital Asset Platforms” proposal paper. Among the key measures proposed are the requirements for crypto platforms to obtain an Australian Financial Services Licence (AFSL) if they hold significant values in client assets, along with the implementation of tailored licensing obligations.

The Australian government also plans to implement a regime for “financialized functions” involving digital assets, targeting activities outside traditional financial products but still requiring regulation. This includes token trading, staking, and tokenization of assets for various purposes. Non-financial tokens, like those for community support or goods redemption, will also be regulated under this scheme.

The consultation phase, which ended on 1 December 2023, was open for feedback on the proposed regulations, with further discussions planned for 2024. After the new laws are passed, there will be a 12-month period for businesses in the digital asset space to adjust and meet these new standards.

The UAE

In March 2022, the United Arab Emirates introduced the Virtual Asset Regulatory Authority (VARA), which became the world’s first crypto supervisor. VARA was launched as part of the UAE’s broader strategy to develop advanced legislative and regulatory frameworks for the fintech and crypto sectors. It was created to oversee and regulate the virtual asset industry within the UAE, specifically in Dubai, excluding the Dubai International Financial Centre.

VARA proposed a comprehensive regulatory framework called Virtual Assets and Related Activities Regulations 2023. This document sets forth licensing requirements for virtual asset service providers (VASPs), detailing the obligations and standards they must meet to operate within the UAE.

The framework is built on several key pillars:

• Licensing and supervision: VARA requires all VASPs to obtain a license to operate in the region
• Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF): The framework emphasizes strict compliance with AML and CTF regulations. VASPs must implement comprehensive systems and controls to detect, prevent, and report suspicious activities
• Consumer protection: VARA prioritizes the safety of investors’ assets. Regulations mandate clear disclosure of risks, the implementation of robust security measures, and the assurance of operational resilience to protect consumer interests
• Market integrity: The authority aims to uphold fairness and transparency in the VA market. This includes measures to prevent market manipulation, fraud, and other unethical practices that could undermine market integrity

VARA’s approach to regulating the crypto industry exemplifies the UAE’s vision to become a leading center for financial innovation. By implementing a robust regulatory framework, the authority not only protects investors but also enhances the attractiveness of the UAE as a destination for crypto entrepreneurs and investors globally.

South Korea

In July 2023, South Korea introduced a groundbreaking legislative framework specifically designed for cryptocurrencies and related digital assets. This effort combined 19 different crypto bills into one single framework called the Virtual Asset User Protection Act. This law provides precise definitions for digital assets as well as outlines stringent penalties for a range of offenses including insider trading, market manipulation, and unethical trading activities.

With this new legislation, the Financial Services Commission (FSC) of South Korea is empowered to regulate both cryptocurrency service providers and digital asset custodians. Additionally, the Bank of Korea is authorized to conduct investigations into these entities.

While digital currencies like Bitcoin are included under this new rule, tokens classified as securities will continue to be governed by existing capital market laws.

In a further development in February 2024, the FSC announced severe legal consequences for those found guilty of engaging in prohibited market activities. According to an official announcement, offenders could face penalties ranging from a minimum of one year in prison to fines that could amount to three to five times the illicit gains obtained from such activities.

Notably, individuals implicated in generating illegal profits exceeding 5 billion Korean won (approximately $3.76 million) from these activities might be subject to life imprisonment or fines up to twice the value of their illicit gains.

Hong Kong

In 2024, Hong Kong once again demonstrated a strong commitment to supporting digital currencies and blockchain technology. Earlier, the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) released policy briefs, showing Hong Kong’s effort to create clear rules for cryptocurrencies and protect investors.

Delving into the specifics, the SFC’s introduction of circulars addressing tokenization and the management of virtual asset exposure in authorized funds marks a great advancement. These circulars aim to mitigate risks and outline regulatory requirements for entities engaged in tokenized securities and investment products, including those related to cybersecurity, due diligence, and investor disclosures.

In addition to this, the city has approved the use of exchange-traded funds (ETFs) that invest in digital currencies, opening up new investment opportunities. This move might set the stage for the introduction of spot virtual asset ETFs into the market.

The HKMA’s proposal to regulate stablecoin issuers also reflects an acute awareness of the growing importance of stablecoins in the digital economy and an intent to foster a secure and transparent stablecoin ecosystem. By aligning with global standards and emphasizing collaboration with international regulatory bodies, Hong Kong aims to position itself as a trusted center for stablecoin innovation.

Conclusion

As governments around the globe strive to balance innovation with consumer and investor protection, the regulatory frameworks regarding cryptocurrencies and blockchain technology evolve at an unprecedented pace. This constant state of change not only presents challenges but also opportunities for businesses poised to navigate the regulatory maze effectively.

This is where our blockchain consulting services can offer invaluable assistance. Our team of experts provides a suite of services tailored to the unique needs of each client. From consulting on the latest regulatory changes and their impact on your business to cryptocurrency development, we are equipped to guide you through every step of the journey.

Turn to our blockchain consultants to navigate the complexities of regulatory compliance and optimize your business strategy in the ever-evolving crypto industry.