The Ministry of Culture and Information has blocked access to the world’s second largest crypto exchange for contradicting the legislation in Kazakhstan.
According to local media reports, Coinbase has violated the country’s new digital assets law which came into force on 1 April 2023. These rules aim to establish a regulatory framework for the issuance and circulation of digital assets in Kazakhstan, including their taxation, and to integrate digital asset trade into the formal economy.
Reports claimed that the exchange breached paragraph 5 of Article 11 of its Law on Digital Assets. This is in relation to cryptocurrency trading on the exchange which prohibits the issuance and circulation of unsecured digital assets, as well as the activities of crypto exchanges on such assets.
The Ministry commented saying: “The Information Committee of the Ministry of Culture and Information received a request from the Ministry of Digital Development, Innovation and Aerospace Industry of the Republic of Kazakhstan with a request to block the Internet resource www.coinbase.com, which violates paragraph 5 of Article 11 of the Law of the Republic of Kazakhstan On Digital Assets in the Republic of Kazakhstan.”
Coinbase has therefore been blocked under the provisions of the Communications Act, which prescribes the obligation of providers to restrict access to sites with prohibited information.
According to these laws, to issue secured digital assets, one must obtain a permit from the Ministry of Digital Development, Innovation, and Aerospace Industry of Kazakhstan, which will be valid for three years.
Issuers are subject to financial monitoring and must inform buyers about the risks, hold ownership rights to the backing assets, and publish issuance decisions on their website. Operations of digital assets exchanges in the country are licensed by the Astana International Financial Centre (AIFC) and are limited to its territory for unsecured digital assets.
This law, which has been in enforcement since April, places the prohibition on the issuance and circulation of unsecured digital assets and activities of crypto exchanges in Kazakhstan except within AIFC territory. This region is a fintech hub in Kazakhstan’s capital city with fewer initial regulatory hurdles.
AIFC has an independent legal framework based on the law of England and Wales and is drafted to complement the regulations of the Dubai International Financial Centre (the “DIFC”).
The special territory figures as a global financial hub connecting Western Europe with Eastern Asia and serving as a gateway to China. It is a part of Kazakhstan’s vision to position itself as the “Dubai of Central Asia” since the advent of the so-called “Dubai model” that was introduced over a decade ago.
Other crypto exchanges like Binance, Upbit and Bybit have the licence to operate in Kazakhstan. This was secured via an AIFC work permit issued by the Astana Financial Services Regulatory Committee.
Back in May, when Bybit got the approval in the country, its co-founder and CEO, Ben Zhou said: “Bybit will work in accordance with the legislation of Kazakhstan and the CIS through the AIFC platform. Our main goal has always been to do business legally. Bybit supports the creation of a secure and transparent cryptocurrency industry for the benefit of users. In the future, we plan to open our world-class trading platform to crypto enthusiasts in the region.”
Last year, Kazakhstan had blocked the websites of one of the world’s largest online brokers, Interactive Brokers and the New York Mercantile Exchange (NYMEX). This was because the NYMEX website allowed people to trade futures on Bitcoin and Ethereum cryptocurrencies outside the jurisdiction of the AIFC.
However, the government has now shown some flexibility by unblocking Interactive Brokers and NYMEX sites, making them available in full and normal mode. The reasons behind restoring its access have not been revealed yet.