G7 sets Out to Strengthen Crypto Regulations

G7 countries and the European Union are working on a global cooperative strategy for digital assets to be unveiled in May 2023.

Canada and Japan are examples of countries that have crypto-friendly regulations.

The United Kingdom is planning to introduce a crypto tax category in its tax return forms for 2024 to 2025.

BIS, FSB and IMF are international organizations that aim to introduce standards for digital assets.

Keywords: Crypto taxes, crypto regulation, crypto assets, digital currency, digital assets, cryptocurrency law, IMF, FSB, BIS, MiCA

Introduction

The implosions of several crypto projects like Terra LUNA and FTX have ed national governments on the need to create and enforce legislations that protect their citizens from similar future mishaps in the sector. Apart from national governments, there are international bodies like the International Monetary Fund (IMF) which are taking the lead in creating standard crypto legislation which their member states can adopt. Today, we focus on how the Group of Seven major industrialized countries (G7) aim to regulate the crypto sector.

The role of G7 in regulating cryptocurrencies

The group of seven industrialized countries, comprising Britain, Germany, Italy, Japan, Canada, France and the United States, is working on a framework of crypto regulations with the aim of enhancing consumer protection and transparency.

Its major aim is to reduce or prevent the potential risks which cryptocurrencies have on the global financial . Generally, regulators want to deal with poor governance that is rampant in the crypto sector. These countries believe that the collapse of crypto giants FTX and Terra Luna were a result of poor governance.

The move by G7 and the European Union comes a few months after the collapse of the three United States banks, Signature Bank, Silvergate Bank and Silicon Valley Bank, that offered crypto services to institutions and individuals.

Notably, some members of G7 like Canada have existing crypto regulations. However, the G7 and the European Union are crafting a global cooperative strategy for digital assets which should be unveiled in May 2023.

The European Union member states - BBC

Crypto regulations in Japan

After the collapse of Mt Gox, a Japanese crypto exchange, Japan introduced measures to protect consumers from crypto risks. Part of Japan’s legislation allows individuals and organizations to report any suspicious crypto transactions.

In addition, crypto users should comply with the Foreign Exchange and Foreign Trade Act which stipulates that any person or organization that wants to carry out a crypto transaction with a value of 30 million JPY or more should notify the Ministry of Finance.

Interestingly, the regulators allow people to buy and sell cryptocurrencies on crypto exchanges. Japan also has clear rules on Anti-Money Laundering (AML) procedures and a taxation policy that applies to digital assets like cryptocurrencies.

In general, the Japanese Financial Services Agency (FSA) works with the Japan Virtual Currency Exchange Association (JVCEA) and the Japan Security Token Offering Association (JSTOA) to regulate cryptocurrencies.

Crypto regulation in Canada

Canada is another country that has functional legislation that applies to the crypto sector. In fact, it is one of the countries with well-defined crypto regulations. For example, it has clear disclosure rules for all firms or projects that deal with cryptocurrencies.

Also, The Canadian Securities Administrators (CSA), a statutory body, requires all crypto businesses to register with it. It is important to realize that the country treats cryptocurrencies as securities. Therefore, provincial and regional authorities ensure that entities handling digital assets abide by these laws.

Although crypto exchanges are allowed to operate in the country they are required to register with the relevant Canadian securities regulator. Significantly, the Canadian tax laws treat cryptocurrencies as commodities like gold and oil.

Crypto regulatory developments in the United Kingdom and European Union

Other countries and regional bodies like the European Union are crafting their crypto regulations as well. For example, the UK is introducing a separate category of crypto taxes in the tax return forms for the period 2024 to 2025. This shows its preparedness to incorporate cryptocurrencies in its budgetary requirements.

Crypto regulations in UK- Coingpedia

Additionally, a report published by the UK Treasury announces a change in the self assessment forms for crypto assets. As such, cryptocurrencies will appear in the expenses and revenue section of the national budget for the period 2025 to 2026.

The Chartered Institute of Taxation (CIOT) has appreciated the changes in the tax and the national budget which take into consideration digital assets like cryptocurrencies. It said, “Highlighting the need to declare crypto asset transactions in the tax return will help raise awareness of people’s obligations in this area.”

In a related development, the European Union’s Markets in Crypto-Assets (MiCA) regulation will come into effect in 2024. In fact, lawmakers in the EU crafted and passed a set of crypto regulations called the Markets in Crypto Act (MiCA) which seeks to reduce and mitigate crypto risks that may affect consumers as well as making the digital services providers liable for losing investors’ crypto assets.

The set of rules will impose requirements on several entities such as token issuers and crypto platforms. They highlight the need for “disclosure, authorization, and supervision of transactions.”

Other bodies that are working towards standardizing crypto rules and regulations are the Financial Stability Board (FSB), the International Monetary Fund (IMF), and the Bank for International Settlements (BIS). These bodies will present regulatory frameworks to the relevant countries or regional blocs.

The expected regulatory frameworks will cover crypto asset activities, the markets and the supervision of the various entities and enforcement of the laws. For example, the IMF is pushing for member states to reject accepting cryptocurrencies as legal tender.

Predictions for crypto regulations for 2023-2024

We anticipate that several countries and international bodies will introduce crypto laws in 2023 and 2024. For example, crypto laws will become stringent due to the effect of the collapse of FTX.

Several international organizations like IMF and The International Organization of Securities Commissions (IOSCO) will likely draft their regulations. Again, many countries will align their existing financial laws or create new legal frameworks to govern the operations of crypto businesses under their jurisdictions.

Conclusion

The G7 and the European Union are working on crypto regulation proposals which are likely to be adopted between 2023 and 2025. Already, several countries like Canada and Japan have clear rules that control crypto businesses. FSB, IMF and BIS are other international organizations that aim to establish standard crypto legal frameworks.