Crypto Asset Trading Platforms: Another Regulatory Journey Around The World | Latham & Watkins LLP

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Trading crypto assets is a fast growing part of the financial sector. Some countries have wholeheartedly accepted crypto assets; others were reluctant to allow wide acceptance. In general, countries have designed existing laws and regulations to apply to crypto assets, or have issued new laws or regulations specifically to address crypto assets – or a combination of both. Due to their use of blockchain and other distributed ledger technologies, in most cases, crypto assets are cross-border and cross-border in nature. Therefore, most crypto-asset issuers and trading platform operators have to consider several legal and regulatory frameworks when attempting to enter the market.

While this chapter examines the regulation of crypto assets and trading platforms in the European Union, the United States, Hong Kong, Singapore, Thailand and Japan, it is important to note that there are generally two types of crypto assets trading platforms: centralized and trading platforms decentralized. Centralized crypto-asset trading platforms usually act as custodians of the crypto-assets and are responsible for compliance with laws and regulations (in this way, traditional exchanges provide a relatively simple analog). Decentralized trading platforms are different. Instead of custody of a user’s crypto assets and facilitating and executing trades themselves, a decentralized trading platform can simply provide the trade matching technology, with users maintaining control / custody of their crypto assets and automatically between crypto assets Smart wallets transfer contracts. Centralized trading platforms have been the target of hacks (both informative and monetary) because, as the name suggests, they act as central repositories for funds (i.e. crypto assets and / or fiat currency) and information (e.g. personal data, provided by users) act to meet know-your-customer needs). Decentralized trading platforms, on the other hand, are not an attractive target for hackers, as they have no means and possibly only limited personal data. Because of this hands-off approach, it is often unclear whether and to what extent certain legal and regulatory provisions are applicable to such platforms: In many cases, if the decentralized trading platform does not hold or transfer funds, they may not be covered by existing regulatory regimes. As the market for decentralized trading platforms continues to grow and develop, regulators therefore continue to grapple with the increasingly complex questions of whether and how these platforms should be regulated.

Originally published in Global Legal Insights – Fintech 2020.

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