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Cryptocurrency regulation and licensing: brief review of current Europe and CIS situation, plus one important case

A few years ago, when most governments could not yet make up their minds about blockchain and cryptocurrencies, the legal responses were quite polarised — from issuing national cryptocurrencies to complete prohibition and criminalization. In some jurisdictions, such confusion still reigns, highlighting the dual nature of the domain.

The indecisiveness of politicians towards crypto assets, however, is understandable. One side of this domain, the financial side, harbors many subtleties that governments generally do not tend to address without an acute need to do so. Blockchain as a technology, on the other hand, makes the authorities curious in terms of other areas where it can be applied.

In a short time, though, everything clicked into place. Blockchain applications in fields other than finance are still at the draft stage, but laws regarding cryptocurrency circulation have emerged in different countries. This means that the authorities saw interest and benefit in the financial side of the cryptocurrency phenomenon, and over the past couple of years, there have been general legislation trends in different countries.

In the first part of this article, we will briefly look at the picture of crypto regulations in the EU and CIS countries. We will consider the most interesting cases of regulation implementation or lack thereof, and how it affects (or does not affect) the crypto circulation. After that, we’ll try to draw some conclusions on how governments are attempting to balance the crypto-economy.

In the second part, will look at the Belarusian example of crypto assets legalization in the legal field of a separate country. As a Belarusian company that took part in this process, we believe that our experience can be valuable for any crypto enthusiast working in the emerging cryptocurrency market who needs negotiation patterns and a good evidential base.

You can go straight to reading part two by clicking here.

Quick facts on cryptocurrency regulation and licensing in Europe and CIS

European Union

If we talk about the EU as a whole political structure, its authorities are still quite conservative about the regulation of cryptocurrencies. There is still no officially accepted classification of digital assets, so we should consider their status in each country.


Cryptocurrencies: Legal
Cryptocurrency exchanges: No specific regulation

Germany is considered one of the most progressive EU countries in terms of crypto assets regulation. Since February 27, 2018, Bitcoin has been officially recognized in the country as money. Moreover, Bitcoin or other virtual currencies that are used on the territory of Germany simply as a means of payment are treated the same as traditional means of payment. Using Bitcoin or other virtual currencies for no other purpose than as a means of payment is therefore not taxable.


Cryptocurrencies: Legal
Cryptocurrency exchanges: Legal

Luxembourg became the first country in Europe to start licensing cryptocurrency exchanges. Cryptocurrency exchangers or exchanges must obtain special permits from state authorities to provide financial services. But despite the strict regulation, the status of cryptocurrency is defined and quite significant: in April 2014, the Commission de Surveillance du Secteur Financier (CSSF) issued a statement equating cryptocurrencies with regular currencies.


Cryptocurrencies: Legal
Cryptocurrency exchanges: Legal

In France, circulation of cryptocurrencies is also legalized. On July 11, 2014, The French Ministry of Finance issued regulations pertaining to the operation of virtual currency professionals, exchanges, and taxation. In 2019, it was announced at Retail Week in Paris that cryptocurrencies would officially be accepted as a payment method at dozens of major retailers, including sportswear giant Decathlon and perfume brand Sephora. Now you can actually buy Decathlon and Sephora gift cards with Bitcoin.


Cryptocurrencies: Legal
Cryptocurrency exchanges: Legal

Finland began to regulate operators of crypto services in 2019. The status of cryptocurrencies is defined as a means of payment and financial instrument. More detailed issues regarding taxation of transactions with cryptocurrencies are described in a specialized instruction, which was issued by the Finnish Tax Service. It states that two taxes are levied on cryptocurrency transactions: capital gains tax and wealth tax. Mining is also subject to taxation.


Cryptocurrencies: Legal
Cryptocurrency exchanges: No specific regulation

Italy does not regulate cryptocurrency use by private individuals, and the Italian legal system does not include the general definition of cryptocurrencies. However, the country is now the leader among 27 EU countries in the use of Bitcoin in transactions. Looking at Coinmap data, 15.3% of all stores in the world that accept Bitcoins are operating in Italy.


Cryptocurrencies: Legal
Cryptocurrency exchanges: No specific regulation

The Swedish Financial Supervisory Authority (Finansinspektionen) has legalized cryptocurrencies as a possible means of payment in Sweden. Licensing and AML/CFT requirements (including customer identification procedures) have been introduced for some companies (which interact with traditional currencies).


Cryptocurrencies: Legal
Cryptocurrency exchanges: Legal

Estonia is one of the undisputed leaders in cryptocurrency regulation and crypto business development. The fundamental part of the Estonian approach is the highest level of regulation. This stimulates the development of legal crypto business, providing secure services within the strict framework.

Estonia has licenses for cryptocurrency operations — one for exchanging cryptocurrencies into fiat, the other for storing cryptocurrencies. Since July 1, 2020, the rules for both licenses in Estonia have been tightened to the level of traditional financial institutions. That is, a company providing cryptocurrency exchange and storage services is subject to the same requirements as any other financial institution operating in fiat currency, and the same regulator, the Estonian Financial Police, is in charge of enforcing these requirements.

Thus, Estonia has provided users and partners of licensed crypto companies with the level of protection typical for traditional financial institutions.


Cryptocurrencies: Legal
Cryptocurrency exchanges: Legal

The Swiss government decided not to waste time and effort on developing special regulations governing the circulation of cryptocurrencies in the local market. Instead, the authorities simply equated crypto with foreign currencies, so Switzerland cryptocurrency regulation has advanced quite a bit.

Thanks to the actions of the Swiss government, Swiss citizens and resident companies can use cryptocurrencies as a common foreign currency to make settlement transactions.

Also, some banks in this country allow their clients not only to buy and sell Bitcoin but also to open deposits in this cryptocurrency.


Cryptocurrencies: Legal
Cryptocurrency exchanges: Legal

The Cyprus Securities and Exchange Commission (CySEC) issued its first regulations regarding cryptocurrency in December 2020. Companies are allowed to make transactions with virtual currencies (following the Cyprus Investment Services and Activities and Regulated Markets Law), but the financial regulator (CySEC) has imposed requirements on companies engaged in activities related to cryptocurrencies and derivatives, including requirements for accounting, capital adequacy, risk management, etc.


Cryptocurrencies: Legal
Cryptocurrency exchanges: No specific regulation

It doesn’t seem like Ireland has any laws regarding cryptocurrencies. It appears that the country still follows the practice of “soft law,” in which regulators issue risk warnings and recommendations for ICOs. Otherwise, the Irish government continues to take a wait-and-see approach to regulatory practices.


Cryptocurrencies: Legal
Cryptocurrency exchanges: Legal

The Maltese government has drafted regulations that put blockchain businesses on par with traditional companies. Through its regulatory stance, the authorities hope to create an enabling environment in which more and more companies will seek to grow through blockchain technology. For these efforts, the country has earned the honorary title of “blockchain island”.

Some of the world's largest crypto exchanges have already moved to the island. One of them is Binance, with an adjusted daily trading volume of $2.5 billion.


As in the case of the European Union, the CIS has not even come close to common regulatory frameworks for blockchain and crypto assets. We will look at two countries where the government is taking more or less conscious steps in the area of digital money law.

Russian Federation

Cryptocurrencies: Banned as means of payment
Cryptocurrency exchanges: Banned

The legal status of cryptocurrencies and the legal treatment to transactions in Russia have been actively discussed since about 2015. Initiatives, plans and proposals during this time were much more numerous than real actions, and the volatility in Russia cryptocurrency regulation was comparable to the volatility of cryptocurrencies.

In July 2020, a law on digital financial assets and digital currency was passed, which came into force on January 1, 2021. The adopted law defines the concept of crypto assets but prohibits its use to pay for goods and services.


Cryptocurrencies: Legal
Cryptocurrency exchanges: Legal

Belarus was among the early leaders of the digital economy. On December 22, 2017, the Decree on the Development of the Digital Economy was signed. It legalized cryptocurrency exchanges, cryptocurrency exchange operators, mining, smart contracts, blockchain, tokens, etc.

Thus, Belarus became one of the first countries to fully regulate the cryptocurrency sector. A year after the decree was signed, the first cryptocurrency exchange in Belarus was opened. It is the Belarusian case that we will examine in detail in the second part of the article.

Governments and cryptos: where are we going?

On the one hand, we can already say with certainty that fears of repression from the authorities against cryptocurrencies have proved unfounded. Every year there is more news about new laws and licenses that go into effect. On the other hand, we see that governments are not planning to become subjects of the cryptocurrency market. Perhaps for security reasons, or perhaps out of a reluctance to spend additional resources, the authorities prefer to be bystanders or act as regulators.

In this regard, the main trend that can be highlighted in the relationship between states and crypto-enthusiasts is the focus on the convergence points between the unregulated digital domain and traditional economies.

In many cases, there are “spot” regulations in places where there is a risk of collapse of the financial and legal environment or the risk of the emergence of a huge shadow market, which will suck up a lot of resources to shut down.

In the examples such as Estonia crypto regulation, we see that traditional civil and economic laws are quite able to cope with the regulation of the cryptocurrency industry, which will no longer be novel in five or ten years.

However, let's not get carried away and face it — for most countries, cryptocurrency regulation is not yet a high economic priority.

But those countries where governments have dared to take the first steps in this direction are now setting an example for the rest. And, as can be seen from the above, there are many examples accumulated.

We have an opportunity to break down such an example in every detail, to show all the stages of the complex process of developing a regulation, from negotiations to the adoption of the final document. Since we are also blockchain and cryptocurrency enthusiasts, and we dream of a brighter future for this field, we consider it our duty to share this experience with all those interested.

Soft-FX supplies software for crypto trading platforms and cryptocurrency exchanges. Our solution was audited by Deloitte, one of the Big Four accounting firms, and certified. It is ready to operate in global cryptocurrency markets according to the applicable laws and regulations.

Contact us and request additional information!

Crypto business regulation: Belarusian case

Belarus officially recognized cryptocurrencies at the end of 2017 by adopting Decree No. 8 on the Development of the Digital Economy. Our expert Ilya Matrenin, Head of Legal, SOFT-FX, took a direct part in the development of the Decree on HTP 2.0. With his help, we will describe you Belarusian cryptocurrency regulation, how the local authorities came to the idea to regulate this kind of activities and how this process took place.

Ilya Matrenin, Soft-FX
Graduated from the Faculty of Law, BSU; MBA Viadrina / EHU Has been working in Belarusian IT since 2003, with Top Soft (Galaxy Corporation), LeverX International, SOFTCLUB. Has been a part of the Soft-FX team since 2010.
Specialization: copyright, corporate, tax law; regulation of financial companies offering to trade in derivatives and cryptocurrencies; internal control (compliance).

— You were a member of the working group on the development of the documents regulating the crypto business in Belarus. Why do you think the states seek to regulate this sphere?

— Cryptocurrencies are an absolutely new kind of relationship, including civil-law relations, that have appeared recently and that resulted from the existence of blockchain technology. Since this technology enhances the development of a new kind of relations, the state will have to regulate them within the existing legislation or by adopting new standards that will regulate these relations.

— How and when did the idea of regulating cryptocurrency activities in Belarus appear?

— The idea appeared in early 2017 amid growing interest in cryptocurrencies and understanding that many IT companies are already engaged in the development of this technology and that digital money is used as new objects of civil rights. Belarus got an opportunity to become one of the first states to regulate these kinds of civil-law relations.

— What are the benefits for the states to be the first to make the crypto business legal?

— The regulation will allow the country to attract a great number of residents that will engage in crypto-related businesses, issue tokens and exchange cryptocurrency on legal grounds in contrast to other states where this kind of relations is not regulated and is in a grey area, not regulated, but permitted under unclear terms, or officially forbidden. These countries will have a chance to develop this industry faster because all entities interested in this business will choose the jurisdictions that adopted the appropriate laws and legalised the crypto sector.

The countries that are establishing or will establish the legal regulation of the crypto business in the near future will be able to take into account the experience of the pioneers and avoid their mistakes in the preparation of these laws.

— Can you describe briefly the stages of the process of adopting regulation in Belarus?

— At that time it was required to make changes to the decree on the regulation of the activity of the Belarus High Technologies Park (HTP) and expansion of the kinds of activities of its residents. Since the crypto business was developing and new tokens were appearing, it was suggested to include the cryptocurrency business issue in the decree.

It was initially offered just to introduce the definition of cryptocurrency and token, as well as to permit some kinds of activities, such as mining. Then the decree’s authors came to the idea to regulate the activities of crypto platforms, cryptocurrency exchange offices and ICO operators in the form of separate businesses. It was a revolutionary offer for Belarus.

As a result, Decree No. 8 stopped being a regulatory document that improved the legal regime of the HTP for ordinary residents, such as product or outsourcing companies. It turned out to be a crypto decree that was created only to develop the cryptocurrency business in the Republic of Belarus.

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