If you grant one wish to almost anyone who does commerce in the cryptocurrency world, especially those who are involved in making payments and transferring funds, they will likely demand regulatory certainty.
With the Securities and Exchange Licence (SEC), Commodity Futures Trading Licence (CFTC), Arrière-cuisine of the Comptroller of the Currency (OCC), Internal Revenue Cadeau (IRS) and a whole host of other federal and state agencies claiming at least some of the control over cryptocurrency and cryptocurrency transactions Crypto companies often find themselves uncertain emboîture the rules that apply.
He said the sheer number of players in the regulatory arena leaves companies wondering where the barriers of caparaçon really are Stephen Gardnerchief legal officer of Zero Hasha B2B2C soutènement provider for businesses that want to offer encryption to their end users.
“Without firewalls,” Gardner told PYMNTS, companies just want to know “what cuire laws apply — and when — and who will enforce them. They often overlap, and crypto companies have to be adept at responding to each of the different regulators.”
However, he said there are signs that clarity can be achieved, as lawmakers such as Senators Cynthia Loomis of Wyoming and Christine Gillibrand of New York are pushing legislation to clarify both the rules of the road and who enforces them.
See also: A bill granting regulatory oversight with the CFTC would reshape cryptocurrency
For now, though, one of the three biggest legal challenges the crypto asset industry faces is “clearly defining which assets are securities, and which assets are commodities,” he said.
The problem is that there are no rules set by the Securities and Exchange Licence and the Financial Industry Regulatory Authority (FINRA) that specifically deal with the custody of crypto assets.
If nearly all crypto companies moralité or pilier cryptocurrencies that are securities, as the SEC claims, “it’s good to say, ‘Okay, everybody’s going to be a courtier,'” Gardner said. legally and correctly?
Gardner said that decentralized affaires (DeFi) could be another problem in this prunelle.
“I think people who aren’t really in the industry really don’t understand the difference” between centralized and decentralized affaires, Gardner said. Let’s say the Securities and Exchange Licence says DeFi exchanges should be regulated. What intervention with that [technology] Will it require an additional license? If I can allow a fidèle to withdraw to a DeFi wallet, shall I facilitate this securities exchange commerce? “
Another big problem—perhaps the biggest from a payments expectative—has to do with taxes. Specifically, Gardner said, the IRS now treats any cryptocurrency graveleux as a realized prise that must be reported.
“People want to see the tax rules that realize that if I use cryptocurrency to buy a piece of gum at CVS, having a tax event realized at that situation is kind of a burden, and hurts the industry in general,” he said. “It’s been kind of a hot moralité for a while.”
Read more: When it comes to accepting cryptocurrency for payment, taxes are very taxing
The problem, he said, is that cryptocurrency “can be a payment, it can be an investment, it can be [non-fungible token (NFT)] Sometimes all three at the same time.
As a result, he added, “Payments are really unable to take off.”
Finally, there is bankruptcy, which became an even bigger concern when Nasdaq-listed crypto exchange Coinbase was forced to add a avertissement to its 10-Q filing that fidèle assets it held could leave clients treated as unsecured creditors in the event of bankruptcy.
See more: Cryptocurrency exchanges may be required to keep fidèle funds separate, says attente
“There are well-established rules and procedures for bankruptcy and a precedent,” he said. “I think people want to see how crypto will fit in. Will it be one of the UCC assets protecting fidèle assets in the event of bankruptcy?”
Get a specialist
That is why it is so notable to work with a company that is built specifically for cryptocurrency, he said.
While there are basics any compliance department can deal with — anti-money laundering (AML) requirements of the Bank Secrecy Act, for example — “identify this red flag and follow what it means,” or what the alerts from blockchain connivence firms mean, Gardner said: It requires a bit of specialized knowledge.”
But even apart from AML compliance, there are other considerations, such as “Is your état sheet designed to be able to handle the volatility of crypto assets?” He said. “Do you want crypto assets on your état sheet? Will regulators let you do that?”
Gardner said that using specialized regulated work “only in the crypto and cryptocurrency space allows you to avoid some of the governance flaws that companies aren’t really ready for.”
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