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Crypto Currency Regulations: A Comparative Analysis of U.K and Switzerland

Crypto Currency Regulations: A Comparative Analysis of U.K and Switzerland

About this project

This report is also published on DatenCule Substack.

Contents

Introduction

Crypto Owners in U.K and Regulations

Comparison of the UK and Switzerland Crypto Related Regulations

Conclusion

Data Sources

References

Introduction

A cryptocurrency is a kind of digital or virtual money that is secured by cryptography to prevent double-spending and retain its authenticity. Blockchain technology, a distributed ledger updated over numerous computer networks, is used by most cryptocurrencies to operate on decentralised networks. Due to their decentralised nature, cryptocurrencies may be shielded from governmental interference or manipulation in theory (1). This raises the question of whether it is appropriate to assume that legislation, especially national law, will be successful in preventing money laundering and other types of criminal activity (2).

The decentralised character of cryptocurrencies makes them more susceptible to abuse, and the increasing volatility of global monetary systems raises concerns for the stability of the financial system. In order to maximise the potential advantages of this innovative payment system and avoid its hazards, the government must act to establish legislation. Distributed ledger technology (DLT), made possible by cryptocurrencies, is revolutionary because it may be used for many purposes by the general public, governments, and public organisations (3). However, following a dark web probe, investigators found multiple middlemen acting as nominees and offering pre-established accounts linked to Wirex, a company that facilitates the conversion of cryptocurrency for conventional fiat money. Through this technique, commonly referred to as "money mule" accounts, criminals can move money through the financial system without disclosing who they are or where the money came from. Money mule accounts combined with the anonymity of cryptocurrencies offer the perfect platform for money laundering operations (4).

According to a report published by United Nations Office on Drugs and Crime(UNODC) in 2024 highlighted that:

“Online gambling platforms, and especially those that are operating illegally, have emerged as among the most popular vehicles for cryptocurrency based money launderers, particularly for those using Tether or USDT on the TRON” (5).

Crypto Owners in U.K & Regulation

undefinedCrypto Owners in the United Kingdom are increasing as shown by the above data. With 17.6 million users in 2023, the U.K. cryptocurrency market has a 25.6% user penetration rate (6).

undefinedThe value of crypto-related frauds is also increasing significantly in the United Kingdom. This may have led the regulatory authorities to take strict regulatory measures and from October 2023 crypto assets, businesses that wish to sell crypto assets to retail consumers in the UK must be either registered or authorized by the Financial Conduct Authority or have their marketing approved by an approved entity (7). For businesses dealing in cryptocurrency in the UK, this involves adhering to the 2017 Money Laundering, Terrorism Financing, and Transfer of Funds (Information on the Payer) Regulations and registering with the FCA. But at the moment, a significant percentage of the cryptocurrency assets market is not subject to FCA regulations (8).

Comparison of the U.K and Switzerland Crypto-Related UK Regulations

Currently, Switzerland is leading the European Continent in terms of crypto ownership according to the data by Statista . The friendly regulatory policies regarding cryptocurrency have made Switzerland a crypto-friendly country.

undefinedBelow is a comparison of U.K and Switzerland’s policies and regulations towards crypto currency.

The below information is sourced from PWC (9):

Switzerland RegulationsThe Financial Market Supervisory Authority (FINMA) and the Swiss government have taken a pro-digital asset and blockchain-related attitude.

In 2020, Switzerland was one of the first nations to modify its legislative framework and adopt particular regulations for decentralised technology. When it comes to financial market regulation, FINMA takes a technology-neutral stance and adheres to the similar danger and similar regulation policy.No specific laws are in force when it comes to the issuance, distribution, and marketing of digital assets. Virtual asset service providers do not currently have a specified position in Switzerland. Financial industry participants that deal with cryptocurrencies may need to seek authorization from FINMA or an affiliate to act as a financial intermediary to a self-regulating body for anti-money laundering purposes.United Kingdom RegulationsThe government is still dedicated to establishing a transparent regulatory framework for digital assets to facilitate the UK's goal of being a global center for the establishment and growth of crypto asset companies. Consequently, some significant advancements have occurred in 2023. As of October 2023, companies that sell eligible crypto assets to customers in the UK will need to register with the Financial Conduct Authority under the Money Laundering Regulations, regardless of the company's location or the technology used in the marketing. The Financial Promotions Order designates qualified crypto assets as "Restricted Mass Market Investments" by the FCA.

Conclusion

Policymakers are concerned that cryptocurrencies could be used for illicit purposes including money laundering, the trading in illegal or restricted drugs, or financing terrorism, regardless of the regulatory approach. The possible lack of protection for investors and consumers is also known to policymakers. The minimal deposit insurance offered to cryptocurrency owners is limited and is not provided by local monetary authorities. Considering both the potential benefits and macroeconomic concerns, it remains uncertain what factors determine policymakers' decisions to embrace or reject cryptocurrencies(10)

Source of Data

  1. https://www.statista.com/statistics/1202468/global-cryptocurrency-ownership/
  2. https://www.rpc.co.uk/press-and-media/value-of-uk-crypto-fraud-reports-increases/

References

  1. https://www.investopedia.com/terms/c/cryptocurrency.asp
  2. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3288097
  3. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3878219
  4. https://www.transparency.org.uk/exposed-thriving-black-market-crypto-fiat-money-mules
  5. https://www.unodc.org/roseap/uploads/documents/Publications/2024/Casino_Underground_Banking_Report_2024.pdf
  6. https://www.financialmirror.com/2023/12/13/uk-crypto-sector-growing-faster-than-in-us/
  7. https://www.fca.org.uk/news/news-stories/guidance-crypto-firms-help-them-comply-marketing-rules#:~:text=Since%208%20October%202023%2C%20firms,approved%20by%20an%20authorised%20firm.
  8. https://www.fca.org.uk/publication/research-notes/research-note-cryptoasset-consumer-research-2023-wave4.pdf
  9. https://www.pwc.com/gx/en/industries/financial-services/assets/navigating-the-global-crypto-landscape-with-PwC-2024.pdf
  10. https://www.adb.org/sites/default/files/publication/513726/adbi-wp978.pdf
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