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“Point of No Return” in the Legal Regulation of Cryptocurrency in Ukraine

On May 7, the 43rd Annual Conference of the International Organization of Securities Commissions (IOSCO) began its work in Budapest. The head of the National Securities and Stock Market Commission Timur Khromaev represent Ukraine at the conference.

During the work of the relevant committees and regulatory seminars, Timur Khromaev pointed out that the regulator is in favor of making a decision to recognize cryptocurrency as a financial instrument. The official believes that Ukraine has already passed the “point of no return” regarding this issue and it is time for its consideration by the financial regulator of the country.

It is expected that Ukraine’s securities regulator will raise the issue of the status of the cryptocurrency at the next meeting of the Financial Stability Board in Kyiv. The head of the National Securities and Stock Market Commission of Ukraine believes that digital currencies should be recognized as financial instruments. Such a solution will allow legalizing crypto units in the country, although not in all their possible functions.

“I think it will be very timely to consider the recognition of some crypto units as financial instruments during the upcoming meeting of the Financial Stability Board,” Khromaev wrote on his Facebook page. He also insisted that the body should work out approaches to regulate “crypto-affiliated” activities and initiate appropriate legislative procedures.

Timur Khromaev noted the active development of the crypto industry in Ukraine which had already established certain standards and rules for doing business, as he said. He also stressed: ““The point of no return” is already in the past. Crypto industry is becoming an integral part of economic and financial relations”.

Therefore, Khromaev believes that the adaptation and legal recognition of this sector by financial regulators of the country are necessary to solve existing problems. The head of the National Securities and Stock Market Commission proposes to consider crypto assets and operations with them within the framework of existing rules “based on the principle and essence, and not on the form”. He also called for the formulation of new rules in response to the dynamic development of the industry.

Moreover, Khromaev pointed out that the international community did not adopt common standards for the regulation of the crypto industry. Therefore, the rules should be determined by national legislation.

On our part, we would like to note the fact that, in general, and in particular, there is no real progress towards the regulation of the cryptocurrency market.

Since October last year, three laws have been under consideration in the Ukrainian parliament: the draft law “On the circulation of cryptocurrency in Ukraine”, the bill “On the stimulation of the market for cryptocurrency transactions and their derivatives” and the additional draft amendments to the Tax Code of Ukraine, which purpose is to regulate the taxation of crypto income and profits. To date, no real progress has been made with regard to the adoption of long-awaited legislation.

Back in November 2017, the NSSMC stated that the use of the term “cryptocurrency” in the new legislation was “unreasonable”. The Commission noted that in accordance with the current legislation of Ukraine, cryptocurrency can not be accepted as electronic money, foreign currency, securities or surrogates of money. The Commission clearly warned: “the risks of losing funds when performing operations with cryptocurrency are extremely high. Anyone who plans to invest their own funds in the cryptocurrency should be aware that they carry out such operations at their own risk. All this can be characterized, in our opinion, only by the absence of any clear position of the NSSMC on this issue.

Some kind of positive trend of the regulator could be observed already in the spring of 2018: In March of this year, the executive branch in Kyiv took steps to legalize mining as an economic activity. The Minister of Economy of Ukraine entrusted several ministries, departments and the National Bank to prepare the necessary documents for inclusion of mining in the state register of economic activities. Unfortunately, there have been no results so far.

Moreover, judging by the fact that the NSSMC itself claims that as the financial regulator of Ukraine, it continues to work on the legal status of cryptocurrencies and the legislative regulation of operations with them, taking into account the position of the regulators of other countries and the latest trends in the development of such technologies, it is likely the introduction of cryptocurrency in the legal field of Ukraine will take a long time.

Although, since the head of the National Securities Commission pointed to the fact that the international community did not accept general standards for the regulation of the crypto industry and therefore the rules should be determined by national legislation, the vector of determining the legal nature of cryptocurrency may change for Ukraine.