New crypto regulations are coming. Here are the technology steps to get ready

Both cryptocurrency companies and the government agencies given new mandates to regulate them are facing uncertain times.The Rapid Expansion Of The Crypto Market And Its Notable Examples Collapse of FTX Regulatory oversight pressures are mounting, but the delay in finalizing the new rules means that stakeholders on both sides of the compliance equation are facing a period of logistical volatility likely to continue for much of 2023. means struggling through

Fortunately, despite these ambiguities, there is still much that both regulated subjects and regulators can do to prepare for the inevitable rollout of stricter rules in the next year or so. Let’s take a closer look at what both sides can do now in anticipation of tightening digital asset regulations heading into the 2020 tax season.

Bringing Regulatory Structures to the “Wild West” Cryptocurrency Ecosystem

The push for compliance in crypto markets is focused on bringing more structure and transparency into what has been a Wild West environment of high activity and relatively light regulation. and in the shadow of the FTX scandal that lost $8 billion in investor funds, and as cryptocurrencies become more widely adopted, ensuring they are traded in a safe and transparent manner becomes increasingly important. It shows what is happening.

These highly anticipated regulations represent both opportunities and challenges for governments. The window of opportunity is the substantial fiscal revenue coming from new tax reporting rules that apply across a busy ecosystem of cryptocurrency and digital asset exchanges, NFT marketplaces and DeFi platforms. The challenge is that rolling out such rules in a sector that already operates at scale can be very complex for enforcement agencies, and the industry’s efforts to understand and comply with the new regulatory environment. This can be very confusing for those involved.

Even more confusing is that the Treasury Department Failed to finalize With regulations easing by the end of 2022, government agencies and cryptocurrency investors alike are unsure of what information will need to be collected in 2023 and plan to report in 2024. These situations make it difficult to articulate the best practices and compliance guidelines to govern, and even more difficult to communicate. How digital assets are used and regulated.

Leverage technology to prepare for upcoming regulations

Unlike traditional financial assets, cryptocurrencies are decentralized and operate outside of established financial frameworks, so the authorities will require stricter measures such as enhanced know your customer (KYC) and anti-money laundering (AML). It seeks to create crypto-specific regulations that promote transparency and trust in the market. ) measures, and require exchanges to provide regular audits and financial statements.

Given that the rules will be rolled out to an already active ecosystem of cryptocurrency trading and investment firms, adopting and complying with these new regulatory frameworks at scale will require the right technology tools and techniques. Essential. This requires preparation and modernization steps for both public institutions and cryptocurrency companies.

Government agencies must start working now to modernize their IT systems and processes, originally designed to meet paper-based requirements, to also handle digital-native processes. In fact, Congress recently passed the 2022 Inflation Reduction Act, which gives his IRS more than $40 billion over the next decade to update its outdated IT systems.

On the other hand, crypto platforms built without compliance and information sharing in mind need to take steps to restructure their IT infrastructure so that they can easily access the information they need to meet their compliance needs. I have. While the impending regulatory scheme is focused on tax, the platform will invest in IT investments to meet these needs to meet upcoming regulations, such as enhanced KYC and AML compliance, and counterparty identification for asset transfers. need to consider how the requirements for Such platforms are backed by the highest standards of data and system security, such as SOC 1, SOC 2, and ISO 27001, as well as certifications such as U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards. Must correspond to tax and accounting practices.

Strategic technology partners play an important role for both parties. The next wave of regulatory compliance calls for standardized data. These strategic partners already act as intermediaries serving multiple entities, and their insights can be used to drive data standardization and facilitate compliance. For example, XBT and BTC are ticker symbols used to represent the same cryptocurrency on different trading platforms. Regulatory compliance requires not only an understanding of these nuances, but also the ability to assimilate data into the required format. This is the gap where strategic partners can help bridge the gap between industry platforms and government agencies.

Conclusion

While governments are not active in the crypto world, understanding how a blockchain-driven crypto market works is important for public bodies charged with developing and enforcing new rules for the sector. is. At the same time, companies dealing with cryptocurrencies can benefit from having the right technology tools and processes in place to comply with the new regulations.

When this happens, we will likely see a broader evolution of new best practices developed out of the need to regulate the crypto market, spread across a broader compliance environment. Organizations across government and the entities they regulate. will increasingly find themselves using technology-driven efficiencies to make the entire audit and compliance process more efficient, accurate and automated.

Miles Fuller is TaxBit’s Head of Government Solutions.