Those views are outdated, mere excuses to avoid confronting it. Whilst no one can claim to be an expert, it is still an area we must try to understand. We shouldn’t judge ourselves too harshly as it’s a complicated topic, but by accepting it and trying to get to grips with what it is – and how it works – we will be better placed to avoid regulatory censure and benefit from it.
This article will illustrate some of the challenges, even mysteries, of cryptocurrency and highlight the importance of stakeholders in compliance staying on top of it all. We’ll look at what regulators are trying to do, and we will also give you a tip on where to go to study this complex topic further.
Fast-evolving blockchain and distributed ledger technologies have the potential to radically change the financial landscape. However, their speed, global reach and above all - anonymity - also attract those who want to escape the scrutiny of authorities.[1https://www.ato.gov.au/General/Gen/Tax-treatment-of-crypto-currencies-in-Australia---specifically-bitcoin/">were legal and therefore subject to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF 2006), section 5 and associated rules. Cryptocurrencies are treated as property, and as such are subject to Capital Gains Tax (CGT).
The US is yet to formulate a consistent legal approach to cryptocurrencies, with laws varying from state to state. Federal authorities even differ in their definition of the term ‘cryptocurrency’: FinCEN doesn’t yet consider cryptocurrencies legal tender; in contrast, the IRS regards cryptocurrencies as property. Different terms being used for the same thing is just another example of how complicated this area is.
The situation in China is different. Cryptocurrency was initially handled very cautiously there but more recently has received some backing. In 2017, the People’s Bank of China banned initial coin offerings and cryptocurrency exchanges, and attempted to root out the industry by making token sales illegal. The biggest exchanges thus ceased trading. This all changed in 2019 when a Chinese court ruled that Bitcoin was digital property. Since then, there has been a shift in cryptocurrency adoption, with Chinese President Xi Jinping calling for an increase in development efforts on blockchain. There is still some caution, but China is certainly a country with development on its mind.
So, what can you do? And why should you do it?
So why is this important? Well, the adoption of virtual assets, blockchain and cryptocurrency is rapidly increasing (a report by Chainanalysis found that of the 154 countries analysed, 92% had some sort of cryptocurrency activity) and the way we work, bank and live in years to come could well look very different to now, with some of these technologies being used to underpin our basic activities.
In a work environment, and focusing on compliance, it is going to be vital to not just monitor these changes but to take action to ensure you and your business remain compliant. A company that fails to evolve will lag behind and the same applies to compliance professionals – if you don’t keep yourself up to date then you too will be out of the loop. Educate yourself about the technology; demystify it. If you’re able to understand it and know what you’re dealing with, this will help you to manage risks and leverage value. Remember that it works both ways. If you’re a FinTech, understand how the technology is exposed to risk through its features and usability and find ways to control it.
There is a plethora of information available on virtual assets, crypto, blockchain and so on but to stay on top of it is almost a full-time job. As mentioned at the start, no one is an expert in this area yet, so all we can do is educate ourselves as best we can, and then share that knowledge.
A really good way to be in the know is to take a course on the subject and allow industry leaders to do the hard work for you. There are risks involved in this new technology and it is important to understand these, but it’s also important to understand the technology itself, including its benefits.
Cryptocurrency is confusing – there is little point in pretending otherwise. But through education and sharing knowledge we are all better able to understand it and adapt to its adoption and continued use. It’s here to stay, so we may as well get on board and enjoy the ride.
 Financial Action Task Force, ‘Virtual Assets’: [1https://www.fatf-gafi.org/publications/virtualassets/documents/virtual-assets.html?hf=10&b=0&s=desc(fatf_releasedate)">https://www.fatf-gafi.org/publications/virtualassets/documents/virtual-assets.html?hf=10&b=0&s=desc(fatf_releasedate) – accessed November 2020
[2https://www.fatf-gafi.org/publications/fatfgeneral/documents/outcomes-plenary-june-2019.html">https://www.fatf-gafi.org/publications/fatfgeneral/documents/outcomes-plenary-june-2019.html – accessed November 2020