Crypto Regulations 2021 – What Digital Currency Providers Need to do

United States

Similar to other countries, cryptocurrency in the US is not considered a legal tender by federal or state laws. The Internal Revenue Service (IRS) defines crypto assets as property and has issued relevant tax policies for their transfer. Securities and Exchange Commission, the US regulatory body, has applied security laws on digital wallets exchanges while the Commodities Futures Trading Commission (CFTC) defines crypto assets as a commodity that allows using virtual currency derivatives publicly. 

Efforts made by FinCEN

The Financial Crimes Enforcement Network of the US Treasury has proposed a regulation to bridge AML regulatory gaps in digital asset transactions. The rule requires financial entities such as banks, fintech firms and credit unions to perform identity verification of crypto users using “unhosted wallets”. These wallets not supported by a financial institution are often used by bad actors and are hard for law enforcement authorities to take down. The US crypto regulation covers the following essential requirements for virtual currency exchange platforms:

• Banks and FinTechs should report customer information to FinCEN on crypto transactions done through more than $10,000 within 15 days
• Financial businesses will practice AML compliance standards for virtual currency transfers between $3000 to $10,000 as per the Bank Secrecy Act (BSA)
• Information on unhosted wallets includes the type and time of the crypto transactions, their value in US Dollars, payment instructions submitted by the customer, and the name and address of the transacting parties.

China

To provide investor protection and to prevent financial risks, China has taken certain measures to regulate cryptocurrencies. Initial Coin Offering (ICO) is declared illegal as per the Chinese government due to the inherent risks to the country’s economy and financial sector. The circulation of virtual tokens with the absence of proper authorization is considered illegal. The ICO rule issued by the government warns of financial crimes including pyramid selling, false fundraising schemes, and illegal token issuance. 

China’s ICO Rule extends to platforms used for cryptocurrency trading that restricts them from converting legal tender into digital assets. Third-party crypto vendors are not allowed to carry out the sale and purchase of cryptocurrencies, set their price, or provide related services in China. 

Central Bank Virtual Currency

The People’s Bank of China (PBOC) has been developing digital Yuan to address crypto-related risks. This will allow regulatory bodies to better identify customers using the digital currency since it is issued by a central authority. According to the Chinese government, the virtual currency would be backed by the PBOC ultimately preventing financial crime through digital asset exchanges.

How can Shufti’s IDV Solution help?

To address anonymity and financial crime related to cryptocurrency, identity verification of customers is essential. Verifying the identity of crypto users allows businesses to practice Know Your Customer (KYC) standards while meeting AML obligations by global regulators. Acquiring identity information from customers helps maintain transparency and trust to establish a good business relationship. 

Identity Verification by Shufti allows cryptocurrency service providers to identify and verify their users in real-time. Our AML/KYC solution powered with artificial intelligence allows digital currency providers to comply with international standards of different countries. Shufti’s IDV solution provides an accuracy of more than 98% for an effortless verification of customer identity allowing regulatory compliance.