Virtual assets and the need to regulate
Daniel Wangutusi
What you need to know:
These challenges are likely to become more pronounced because no intermediary authority has jurisdiction to settle cryptocurrency-related disputes
A virtual asset is a digital representation of an item that has value in a specific environment.
Virtual assets are innovative technology representing value that could be stored, and traded, in a digital form, Bitcoin, Litecoin, Ethereum, Dogecoin, Gaming tokens, crypto assets, non-fungible tokens (NFTs) are all virtual assets.
It is important to note that virtual assets are not legal tender in every jurisdiction and it is key for one to establish that in whichever part of the world they are when they decide to venture into the realm of digital currencies and among other virtual assets.
The potential for the virtual asset industry to grow is massive, given its popularity and the growing use of the technology across all sectors, the rapid growth has also led to concerns from a regulatory point of view, with international organizations calling for global binding standards to prevent the misuse of virtual assets. An increase in virtual assets has expanded the scope of fraud, cyber-crime, and illegal trade across the world
This is a growing sector that is attracting many players across jurisdictions and public interest in virtual assets such as Cryptocurrencies, like Bitcoin, recently surged as multiple industries are exploring how to capitalize off the new technology. As public interest increases, new uses for cryptos develop daily as do its potential legal liabilities.
The Financial Action Task Force (FATF), an inter-governmental body, sets international standards aimed at preventing money laundering and terrorist financing. Part of that effort has been to bring clarity to how virtual assets should be defined and regulated on an international basis.
In December 2020, the Financial Intelligence Authority (FIA) published recommendations, a letter amending the Anti-Money Laundering Act to include virtual asset service providers (VASPs) among the list of “accountable persons” subject to supervision and monitoring by the FIA.
There, however, are concerns with the substantial non-compliance of market participants to the agency’s licensing requirements, exposing market participants to even greater risks of money laundering, terrorism financing, investment scams, and more. In a recent report by the FIA, it announced that “only few VASPs registered.” Consequently, the FIA of Uganda is seeking assistance from the country’s Finance Ministry to establish more extensive crypto regulations, particularly with regards to Crypto Service Providers.
Cryptocurrency as virtual assets or digital currency is not considered legal tender in Uganda, and the government hasn’t licensed any entity to sell or facilitate the trade of cryptocurrencies yet, leaving an entire yet profitable sector quite vulnerable to all kinds of threat, misuse, mismanagement and crime.
Despite many dealing, trading and mining in virtual assets and currencies, many jurisdictions are yet to enact laws governing cryptocurrencies, Uganda is no different meaning that, the legality of crypto currencies as virtual assets remain unclear.
Under the Financial Crimes Enforcement Network (FinCEN), crypto miners are considered money transmitters, and therefore need to be subject to the laws that govern it. A sector such as this can be adopted into any one given jurisdiction but need be heavily regulated as they do present legal issues.
Cryptocurrencies aren’t backed by any centralised issuing authority or intrinsic goods like gold or silver, their value totally depends upon the value that owners and investors ascribe to them. These challenges are likely to become more pronounced because no intermediary authority has jurisdiction to settle cryptocurrency-related disputes.
