What Regulations Do I Have to Follow to Start a Digital Asset Business?

The explosive growth of crypto combined with a patchwork of hastily developed regulations by governments has turned the crypto landscape into a minefield for those looking to establish compliant businesses.

This can be a real struggle for those trying to break into this cutting-edge industry. The nuances of compliance are complex, vary dramatically by region, and must be navigated carefully. Companies who fail to comply with the risk of being denied access from banking institutions, accusations of fraud, or even inditement under securities law. An abundance of caution is recommended, and understanding the regulations of the region you want to conduct business within is a crucial first step.
Current Regulatory Landscape

In the U.S., there is no federal ruling on blockchain technologies. Subsequently, crypto and blockchain regulations in the United States differ from state to state and vary widely. Some states, like New York, have strict cryptocurrency regulation. Other states like Wyoming have passed crypto-friendly regulations with the hopes of being a future cryptocurrency hub and growing their economy. Other states have yet to pass significant cryptocurrency regulations entirely.

The situation outside of the US remains diverse. Similarly to the situation with the United States, some countries have passed restrictive legislation to protect their citizens from perceived threats of fraud or because of fears that crypto will provide an alternative to the national currency. Some countries like Algeria and Bolivia have gone so far as to completely prohibit cryptocurrencies and blockchain technology. China, with the world’s largest economy, has heavily restricted cryptocurrency. Meanwhile, some smaller players, hopeful to grow their economy and become more involved in the global market, have welcomed the use of cryptocurrency, passing crypto-friendly laws and attempting to establish themselves as crypto hubs.

The inconsistencies of regulation are complicated but have created opportunities for enterprising entrepreneurs and governments looking to open their markets to crypto. Even though it is infancy, this technology has the power to add scale and increase transparency for many institutions. Despite attempts of officials to slow progress, the growth of this space is already underway. The question now is what that growth looks like. To shape the future of crypto in a positive direction and eventually bring crypto out of the margins, it is critical businesses adhere to licensing. This also serves to mitigate risk for their customers, investors, and businesses themselves as well as fostering innovation.

JURISDICTIONS THAT ARE CRYPTO FRIENDLY

Governments taking advantage of the opportunity that crypto’s explosive growth has provided are taking pains to make themselves more attractive to crypto-based businesses. The following jurisdictions are leading the way:

MALTA

Malta has the most comprehensive crypto regulatory framework of any state. This makes them an incredibly attractive destination for the crypto business, and many major companies are starting businesses or moving to Malta in order to more easily achieve compliance.

ESTONIA

Eager to lead the EU in technological progress, Estonia has begun offering e-residency and i-voting. Acquiring a license is affordable, but EU anti-money laundering directives are required which can be difficult to attain given the nature of blockchain technology.

MALAYSIA

Determined to be the leader in the Asian market, Malaysia has passed specific compliance regulations known as the Digital Asset Exchange License. They have clearly laid out blockchain regulations, and soon will amend to specific regulations related to ICOs.

MAURITIUS

Committed to “accelerating the country’s move to an age of digitally-enabled economic growth,” Mauritius has recently specified its regulatory framework for Digital Assets. Stipulations include statutory reporting, disclosure, and a minimum for reserve assets as well as a program for comprehensive risk management.

LABUAN

Technically, a federal province of Malaysia, Labuan has similarly favorable regulatory attitudes towards crypto but requires fewer requirements than the rest of the country companies keen on doing business in the region can benefit from lower taxes.

SEYCHELLES

Seychelles offer a flexible entity structure and allows brokers to elect whether or not they are regulated. As such, Seychelles is home to notable exchanges such as Huobi and Bitmex.

UNITED STATES

Utilizing a federal system of governance, the United States offers the most intense regulatory environment in the world. While gaining compliance in all 50 states (including the coveted Bitlicense) is no easy task, the accomplishment of this feat will put you in the upper echelon of global exchanges with the likes of Coinbase, Gemini, and Bittrex.

CONCLUSION

The current regulatory environment is tricky to navigate. Shift Markets provides all the necessary steps to ensure that your business practices are compliant with the regulatory environment.

Contact Shift Markets today to find out how we can help you start your crypto business.