CARF and Its Impact on the Crypto Market: A Comprehensive Overview

CARF is a global initiative led by the OECD and stands for "Crypto-Asset Reporting Framework". This framework promotes the automatic exchange of information between countries to tackle emerging tax evasion risks related to cryptocurrency and digital assets. CARF defines “crypto-assets” as a “digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions”.

Any financial institution that has a customer trading in crypto-assets, as well as Crypto-Asset Service Providers (CASPs), which include exchanges, brokers, and wallet providers who facilitate crypto transactions. It also impacts entities with control over decentralized exchanges (DEXs) or DeFi protocols, and NFT marketplaces.

The 49 jurisdictions that have committed to implement CARF will transpose the framework into local laws. The rules are scheduled to take effect on January 1, 2026, with the first reports due by January 31, 2027.

The scope of CARF includes all relevant Crypto-Assets, which encompasses certain NFTs but excludes Central Bank Digital Currencies (CBDCs), Specified Electronic Money Products, and crypto-assets that cannot be used for payment or investment purposes.

Under CARF, financial institutions and CASPs must collect information on users, including their tax residences and tax identification numbers, and report this information to their domestic tax authority. The types of transactions that need to be reported include:

1. Exchanges between relevant crypto-assets and fiat currencies.
2. Exchanges between one or more forms of relevant crypto-assets.
3. Transfers (including reportable retail payment transactions) of relevant crypto-assets.

CARF aims to enhance transparency and compliance in the crypto market, potentially reducing risks such as tax evasion, fraud, and money laundering. Given the reporting obligation, financial institutions need to prepare for a different automatic exchange of information process, in addition to existing CRS reporting. This could lead to higher compliance costs for CASPs but is also likely to enhance trust in digital assets, making them more attractive to institutional investors.

The primary risks associated with CARF include the increased compliance burden on financial institutions and CASPs and the potential for data privacy concerns due to the extensive reporting requirements. Regulatory Arbitrage: Entities might seek jurisdictions with less stringent reporting requirements to avoid compliance, potentially undermining CARF's effectiveness.

Yes, CARF is specifically designed to address the reporting of “crypto-assets”, which it defines as a «digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions». Hence not only cryptocurrencies are affected by CARF, but any virtual assets, such as digital bonds and other tokenized securities.   

Both are frameworks or standards with a view to automatically exchange information. Whereas Common Reporting Standard (CRS) is based on the exchange of account information for documented clients, CARF will be based on aggregated transactions for documented clients. Furthermore, CARF focuses on the reporting of crypto-asset transactions, while CRS covers traditional financial assets.

CARF is an OECD framework for the automatic exchange of tax information on crypto-asset transactions, while the Markets in Crypto-Assets (MiCA) regulation is an EU regulatory framework aimed at providing legal certainty and consumer protection for crypto-assets. MiCA covers a broader range of regulatory aspects, including licensing requirements for CASPs and rules for stablecoins. Both frameworks complement each other but serve different regulatory purposes.

SIX will provide instrument classifications for CARF and CRS-relevant Digital Assets and tokenized securities. Security identifiers and token classification will facilitate aggregation of transactions for reporting to the tax authorities.