BITCOIN REGULATORY DEVELOPMENT
GLOBAL PERSPECTIVE

MARK MCKENZIE
REGULATORY GOVERNANCE & COMPLIANCE EXPERT
MARK MCKENZIE C...
Objective of Presentation



To provide information on regulatory
developments from around the world
“ Virtual currencies
promise to benefit
commerce on many
levels, from serving the
unbanked to new
financial products. I
ch...
“It is important to continually
i m p r o v e C a n a d a ’s r e g i m e t o
address emerging risks,
including virtual cur...
The budget went on to
promise “anti-money
laundering and antiterrorist financing
regulations for virtual
currencies, such ...
Regulatory Developments
• Benjamin Lawsky, superintendent of
New York's Department of Financial
Services
• Revealed new de...
Regulatory Developments
• Plans to issue a "BitLicense" for
businesses that use the new
currencies, and he intends to prov...
Regulatory Developments
• The more challenging questions are:
• What capital requirements firms must
have on balance sheet...
Regulatory Developments
• His agency is still wrestling with
whether to ban or restrict the use of
"tumblers.“
• Tumblers ...
Regulatory Developments
- Russian Perspective
• The Bank of Russia has warned that
Russian legal entities providing
servic...
Regulatory Developments
- India‟s Perspective
• Bitcoin community fearful of arrests and raids by tax officials
• Many Ind...
Regulatory Developments
- China‟s Perspective
• In mid-December 2013, The People‟s
Bank of China ruled:
•

That merchants ...
Regulatory Developments
- Canadian Perspective
• Financial Transactions and Reports
Analysis Centre of Canada
(FINTRAC),
•...
Regulatory Developments
- Canadian Perspective
• FINTRAC‟s hands-off approach
• Enabled numerous start-ups to flourish
in ...
Regulatory Developments
- Canadian Perspective
• Jesse Heaslip, who runs Vancouver-based white label
exchange software com...
Regulatory Developments
- Canadian Perspective
• FINTRAC has been so hands off in the past that
Canadian exchanges have ha...
Regulatory Developments
- Canadian Perspective
• Like many south of the border, Heaslip wants
consistency. “The best possi...
Regulatory Developments
- Canadian Perspective
• Changing attitudes to bitcoin
• FINTRAC has practically ignored bitcoin s...
Regulatory Developments
- Canadian Perspective
• Eric Spano, director of finance at the Montrealbased Bitcoin Embassy, whi...
Regulatory Developments
- Canadian Perspective
• When FINTRAC turns its attention to a subject, it
has a history of aggres...
Regulatory Developments
• Likely to be shaped by Liberty
Reserve Case

• In the FinCEN Guidance FIN-2013G001
• Think of MS...
Sources
•

Bradbury, Danny. “What the „Bitcoin Bug‟ Means: A Guide to Transaction Malleability.” February 12, 2014.
http:/...
Mark McKenzie
Regulatory governance and compliance expert
markymmckenzie@rogers.com
1-647-406-4622
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Bitcoin regulatory development

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This is a synopsis of developments relating to Bitcoin.

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Bitcoin regulatory development

  1. 1. BITCOIN REGULATORY DEVELOPMENT GLOBAL PERSPECTIVE MARK MCKENZIE REGULATORY GOVERNANCE & COMPLIANCE EXPERT MARK MCKENZIE CONSULTING FEBRUARY 18, 2014
  2. 2. Objective of Presentation  To provide information on regulatory developments from around the world
  3. 3. “ Virtual currencies promise to benefit commerce on many levels, from serving the unbanked to new financial products. I challenge our innovators: devise creative solutions to prevent virtual c u r r e n c y a b u s e .” FinCEN Director Jennifer Shasky Calvery
  4. 4. “It is important to continually i m p r o v e C a n a d a ’s r e g i m e t o address emerging risks, including virtual currencies, such as Bitcoin, that threaten C a n a d a ’s i n t e r n a t i o n a l leadership in the fight against money laundering and t e r r o r i s t f i n a n c i n g ,” s a i d Finance Minister Jim Flaherty in the budget document.
  5. 5. The budget went on to promise “anti-money laundering and antiterrorist financing regulations for virtual currencies, such as B i t c o i n .”
  6. 6. Regulatory Developments • Benjamin Lawsky, superintendent of New York's Department of Financial Services • Revealed new details of plans to govern virtual currency firms in the state in order to protect consumers and combat money laundering. • Expects to adopt enhanced consumer disclosure rules, capital requirements and a framework for permissible investments with consumer money. • "Our objective is to provide appropriate guard rails to protect consumers and root out money laundering—without stifling beneficial
  7. 7. Regulatory Developments • Plans to issue a "BitLicense" for businesses that use the new currencies, and he intends to provide regulations this year, • Could make New York the first U.S. state to regulate virtual currencies such as bitcoins. • Lawsky said consumers need to know that virtual currency transactions are generally irreversible, and that they could lose their principal if they hold onto bitcoins for an extended period.
  8. 8. Regulatory Developments • The more challenging questions are: • What capital requirements firms must have on balance sheets to absorb unexpected losses? • How many risks they can take with investments using consumer money? • Should firms be allowed to invest in virtual currencies? • What types of firms and transactions to regulate.
  9. 9. Regulatory Developments • His agency is still wrestling with whether to ban or restrict the use of "tumblers.“ • Tumblers obscure the record and source of virtual currencies. • Tumblers are a concern to law enforcement, but that they might have legitimate uses. • He said most virtual currencies have public ledgers which, when combined with know-your-customer guidelines, could serve as anti-money laundering
  10. 10. Regulatory Developments - Russian Perspective • The Bank of Russia has warned that Russian legal entities providing services for the exchange of “virtual currency” in rubles and foreign currency, as well as for goods (works, services) will be considered as a potential involvement in the implementation of suspicious transactions in accordance with the legislation on counteraction to legalization (laundering) proceeds of crime and financing of terrorism.” Source: terrorism.” - Statement issued on January 27th by the Central Bank of the Russian Federation
  11. 11. Regulatory Developments - India‟s Perspective • Bitcoin community fearful of arrests and raids by tax officials • Many Indian Bitcoin businesses have (at least temporarily) shutdown. • Reserve Bank of India issued a warning on the risks of digital currencies • Bitcoin community of India is seeking legal help in order to clarify the legal landscape of doing business in the country. • In the third week of February, The Bitcoin Alliance of India will be meeting with the Reserve Bank of India to discuss the future of digital currencies in India. • Increased lobbying in India for a “clear regulatory framework on digital currencies.”
  12. 12. Regulatory Developments - China‟s Perspective • In mid-December 2013, The People‟s Bank of China ruled: • That merchants were not allowed to accept Bitcoin and • Banks and payment processors were forbidden from coverting Bitcoin in yuan. • Deposits into Chinese Bitcoin exchanges were banned, and the price of Bitcoin tumbled nearly 50% overnight. • There is hope as Bitcoin wasn‟t all out banned, just harder to purchase. • BTC China has since found a loophole to continue business whereby “customers can now buy bitcoins from the exchange by depositing their funds directly into the company‟s account.”
  13. 13. Regulatory Developments - Canadian Perspective • Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), • When such laws emerge, they will most likely take the lead • Financial intelligence unit • Responsible for preventing money laundering and other financial acts that could support terrorism.
  14. 14. Regulatory Developments - Canadian Perspective • FINTRAC‟s hands-off approach • Enabled numerous start-ups to flourish in Canada, • Said Michael Patryn, director of the Vancouver Bitcoin Co-Op, and of new Vancouver bitcoin exchange QuadrigaCX. • “Entrepreneurs are comfortable with their country‟s regulatory stance, and are therefore able to offer new services and create new jobs without the burden of excessive regulatory requirements stifling their innovation,” he said
  15. 15. Regulatory Developments - Canadian Perspective • Jesse Heaslip, who runs Vancouver-based white label exchange software company Bex.io, also argued that FINTRAC‟s hands-off approach has been a good thing for the industry. • “When I compare where Canadian entrepreneurs are focusing their attention in the bitcoin ecosystem compared to our American counterparts there is no question that we are spending more time, effort and energy on innovation,” he said, pointing to projects like Ethereum, CoinKite, and his own Bex as homegrown examples. • “They need to make a decision and figure out what regulations need to be or not be in place, sooner
  16. 16. Regulatory Developments - Canadian Perspective • FINTRAC has been so hands off in the past that Canadian exchanges have had a hard time getting it to take notice of them. Mike Curry, founder of Toronto-based Vault of Satoshi, tried to apply for an MSB license last year, but was refused, on the basis that as a bitcoin business he didn‟t need one. It‟s time for some clarity, he said. • “Thus far we‟ve been treating digital currency with the same care as we do with fiat (in terms of AML/KYC),” Curry acknowledged. “I think they need to make a decision and figure out what regulations need to be or not be in place, sooner rather than later.”
  17. 17. Regulatory Developments - Canadian Perspective • Like many south of the border, Heaslip wants consistency. “The best possible outcome would be if there was one global license that was required rather than having an application for each individual country and or state,” he said. “That would limit the mental and financial burden on entrepreneurs around the regulatory issues and allow us to focus on innovation in the marketplace.”
  18. 18. Regulatory Developments - Canadian Perspective • Changing attitudes to bitcoin • FINTRAC has practically ignored bitcoin since its inception, but things may be changing. • An internal report from the organization, obtained through an Access to Information request, has revealed that the agency is contemplating a range of regulatory measures. • Options that the agency may be considering include an potential plan to “choke bitcoins oxygen” by denying Canadians access to foreign exchange markets, said reports. • It is also said to have considered forcing bitcoin exchanges underground, but acknowledges the potential downside for consumers.
  19. 19. Regulatory Developments - Canadian Perspective • Eric Spano, director of finance at the Montrealbased Bitcoin Embassy, which is an affiliate chapter of the Bitcoin Foundation, said that the Canadian government had let bitcoin breathe for a while without regulatory smothering, and welcomed the next step. • “Now that Canada is becoming a hub for Bitcoin enthusiasts and businesses, we‟re very happy to see FINTRAC‟s interest in the technology,” he said. “The establishment of a regulatory framework that mitigates money laundering and fraud risks, while continuing to enable Canadian businesses and startups to create innovative technologies and services, will continue to attract talent and venture capital from around the world.”
  20. 20. Regulatory Developments - Canadian Perspective • When FINTRAC turns its attention to a subject, it has a history of aggressive reporting. Two separate audits have found the agency to exceed its mandate when pursuing and storing personal information, for example. It was discovered to have been processing reports of financial activity without explaining why they should have been considered suspicious. The Canadian bitcoin community will be watching its next move with interest.
  21. 21. Regulatory Developments • Likely to be shaped by Liberty Reserve Case • In the FinCEN Guidance FIN-2013G001 • Think of MSBs, Internet Banking and Mobile Banking
  22. 22. Sources • Bradbury, Danny. “What the „Bitcoin Bug‟ Means: A Guide to Transaction Malleability.” February 12, 2014. http://www.coindesk.com/bitcoin-bug-guide-transaction-malleability/ • Felten, Ed “Understanding Bitcoin‟s transaction malleability problem.” February 12, 2014. https://freedomto-tinker.com/blog/felten/understanding-bitcoins-transaction-malleability-problem/ • Fuller, Cameron. “MtGox Blames Bitcoin For Withdrawal Suspension, Core Developers Say Otherwise: Who Is Really At Fault?” February 11 2014. http://www.ibtimes.com/mtgox-blames-bitcoin-withdrawalsuspension-core-developers-say-otherwise-who-really-fault-1554512 • Matthew, Jerin. “Singapore's ItBit Capitalises on Transaction Malleability Issue at Other Bitcoin Exchanges.” February 17, 2014. http://www.ibtimes.co.uk/singapores-itbit-capitalises-transaction-malleability-issue-otherbitcoin-exchanges-1436680 • Neal, Ryan W. “Silk Road 2 Hacked: Entire Bitcoin Wallet Drained, $2.7 Million Stolen.” February 13 2014. http://www.ibtimes.com/silk-road-2-hacked-entire-bitcoin-wallet-drained-27-million-stolen-1555433 • https://bitcoin.org/en/faq
  23. 23. Mark McKenzie Regulatory governance and compliance expert markymmckenzie@rogers.com 1-647-406-4622

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