Cryptocurrency regulation: what to learn from foreign experiences?

Previously suspicious of cryptocurrencies, Morocco is embarking on a regulatory project focused on security, balance and supervision, as announced by Adil Zbir, responsible for monitoring financial market infrastructure and payment systems at Bank Al-Maghrib, during Business Africa- USA Summit held in Marrakech from 19 to 22 July 2022.

What is the most suitable legal system for Moroccan law? What considerations should be taken into consideration in the context of this draft regulation? What can we learn from foreign experiences in this sector? Here is the enlightenment I Ilias Segamelawyer at the Casablanca Bar and expert in digital law.

Foreign regulations: between crypto hub and supervision

Although there is no consensus on a single or official definition of cryptocurrency, it can be defined as “a non-governmental digital asset based on a combination of cryptographic algorithms, the existence and transfer of which are confirmed and recorded on a ledger distributed on a independent computer network “.

According to Me Segame, “countries are constantly evaluating the best possible legal framework in order to solve the specific, and often new, problems posed by cryptocurrencies whose technological particularities, uses and applications challenge the use of existing legal frameworks and definitions. “.

“In order to benefit from the advantages of this technology in a safe and legal way, some countries, with the ambition of attracting cryptocurrency and blockchain players and becoming an essential industrial hub, have distinguished themselves by putting in place a favorable legal framework for development. of the cryptocurrency ecosystem in terms of cryptocurrency regulation, political orientation and tax treatment, “he continues.

For example, the legislator Swiss actively supports the creation of an attractive legal framework for the use of cryptocurrencies, further encouraging the status of CryptoHub from the country.

Thus, in Switzerland, considered a “crypto valley”, “the payment of taxes in cryptocurrencies in some regions is completely legal”, indicates Me Segame. Parliament passed legislation related to distributed ledger technology (DLT), known as the DLT law. This is one of the most notable regulatory developments, since «one of the main contributions of this law, which came into force on 1 August 2021, is the establishment of a license for financial market infrastructures for DLT securities which may admit to trading other companies and individuals in addition to financial intermediaries. Legal certainty has also been strengthened in bankruptcy law by explicitly regulating the segregation of cryptocurrencies in the event of bankruptcy “.

Regarding the anti-money laundering regulations, Me Segame indicates that the Financial Market Supervisory Authority (FINMA) considers that the issuance of cryptocurrencies constitutes “financial intermediation”. Consequently, “it is subject to the applicable anti-money laundering legislation (AMLA). On the other hand, the mere fact of selling cryptocurrencies to third parties, or using these cryptocurrencies as a means of payment for the sale or purchase of goods and services, does not constitute financial intermediation “, explains Me Segame.

Moreover traffic warden, Singapore adopts a “supportive but prudent approach”. It “regulates all cryptographic activities depending on their purpose rather than technology. It remains a very attractive destination for start-ups and cryptocurrency investments due to its regulations and favorable tax treatment of capital gains, “explains this digital law expert.

“The Monetary Authority of Singapore (MAS) classifies cryptocurrency as property and not legal tender. The MAS regulates and licenses digital exchanges and does not appear to be moving towards banning cryptocurrency trading activities. “

In the fight against money laundering, Singapore applies cryptocurrency regulations that vary depending on the type of license required. Therefore, “if an entity is governed by art Securities and Futures Law (SFA), opinion SFA04-N02 “Prevention of money laundering and countering the financing of terrorism – Capital market intermediaries” might apply. Per the Payment Services Act (PSA), notice PSN01 “Prevention of money laundering and countering the financing of terrorism – License holders for payment services (specific payment services)” and / or PSN02 Payment holders Licensing Services (Digital Payment Token Service) issued by the MAS is applicable ”, explains Me Segame.

Other countries are considered “pioneers of digital exchanges”, such as Australia which stands out as “a relatively progressive and stable destination for blockchain and crypto-asset operations”.

“Digital exchanges have existed since 2017, making Australia a leader in the industry. The country classifies cryptocurrencies as legal property, not as a currency. To this end, Australia allows cryptocurrency service providers to operate under license and treats cryptocurrencies as financial assets under its Securities Act.

“Since 2018, Digital Currency Exchange (DCE) providers are required to register and register with Australian Transaction Reports and Analysis (AUSTRAC) as a reporting entity under the Australian AML. / CTF framework. Otherwise, these entities face a sentence of up to two years in prison or a fine of up to AU $ 110,000 or both.

While Australia is regarded as a leader in the industry, other countries are emerging with new regulations. This is the case with United Arab Emirates where a favorable legal framework for cryptocurrency has recently been adopted, “to attract significant investments in the sector and become an essential global hub in this area”.

“In 2020, the Abu Dhabi global marketplace ADGM (the emirate’s international financial center) put in place a comprehensive framework to regulate virtual asset activities specifically through guidance. The regulatory framework of the Financial Services Regulator (FSRA) focuses on consumer protection, technology governance, disclosure / transparency and market abuse, ”says Segame.

It also discusses the regulations, implemented in Dubai, favorable to virtual asset services provided in the emirate, as well as the creation of the Dubai Virtual Assets Regulatory Authority (VARA), through the adoption of law no. (4) of 2022.

“This authority is specifically responsible only at the emirate level, and with the exception of the Dubai International Financial Center (DIFC), for regulating and supervising the relevant issuing, offering and disclosure processes of virtual assets and NFTs. “

“VARA is also the competent authority to grant licenses to entities offering services in relation to virtual resources and intervenes to monitor the exchange of virtual resources in order to prevent price manipulation and establish high standards of personal data protection” he adds.

Which direction for Morocco?

For Me Segame, the comparison between these foreign regulations, with different approaches, allows us to identify two clear trends:

Licensing or Approval Scheme to which the platforms and providers of cryptocurrencies, decentralized and otherwise, necessarily submit.

Compliance with local AML / CFT laws : which subjects said platforms to the obligation to comply with local regulations on the fight against money laundering and the financing of terrorism.

“For Morocco it is appropriate, from the beginning, to integrate these two considerations within the regulatory project to allow greater trust, credibility and security in the exchange of cryptocurrencies on decentralized platforms. It is also strongly recommended that measures and mechanisms be put in place for consumer protection to prevent unfair, deceptive or abusive practices. “

“The different ways that consumers can hold cryptocurrencies are also a cause for concern, especially when it comes to self-hosted wallets (self storage wallet) separate from custodial services (custody services). In this regard, self-hosted portfolios are generated by IT protocols and are accessible to the public directly via the Internet ”, he continues.

“Therefore, it is up to the consumer to understand the interface, the security mechanisms, the management and storage of private keys, and the fact that no centralized company is involved and there may be no structure to use in the event of a loss of access to the portfolio constitutes a significant risk. “

Therefore, Mr. Segame believes it is “essentialeducate the Moroccan consumer in order to allow him a free and informed choice and to consider the establishment of suitable rules to guarantee adequate information in relation to these specific financial products “.

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