Bitcoin in Singapore: Some legal and regulatory issues

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Bitcoin is growing in Singapore. In this presentation, I build upon my LLB thesis for a light-touch approach to its regulation, and consider three issues: (1) what Bitcoin is, (2) the benefits and legal risks of dealing with Bitcoin and (3) regulating Bitcoin with a light touch.

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Bitcoin in Singapore: Some legal and regulatory issues

  1. 1. Some legal and regulatory issues Bitcoin in Singapore Lam Pak Nian LLB (Hons), NUS Sim Kee Boon Institute for Financial Economics, SMU Presentation on 13 June 2014 at Lee Kong Chian School of Business, SMU What is Bitcoin? Benefits and legal risks Regulating with a light touch
  2. 2. Bitcoin is… Money? – Medium of exchange, Unit of account, Store of value  Not legal tender – Currency Act: Only currency issued by MAS • (Not?) Property? In a ‘virtual’, decentralised system? – Torts/Personal/Intellectual property law: conversion? – Insolvency law: personal vs proprietary claim? – Contract law: mistake, fraud? 13 June 2014 Lam Pak Nian 2 1. WHAT IS BITCOIN?
  3. 3. Regulators say Bitcoin is… Taxable – IRAS: Income from trading or mining Not subject to MAS’s oversight – Payment Systems (Oversight) Act targets identifiable operator – Not regulated per se but will be for AML/CFT: • Tharman (21 Feb 2014), MAS Press Release (13 Mar 2014) 13 June 2014 Lam Pak Nian 3 1. WHAT IS BITCOIN?
  4. 4. Main benefits • Faster and cheaper payments • Possibility for further innovation 13 June 2014 Lam Pak Nian 4 2. BENEFITS AND LEGAL RISKS
  5. 5. Legal risks • Money laundering and terrorist financing • Counterparty risk in a decentralised system – Who bears the loss in a defective transaction, mistake or fraud? • Miner (who?), exchange, end user? – Unclear; needs to be sorted out in the law • Torts/Personal/Intellectual property law: conversion? • Insolvency law: personal vs proprietary claim? • Contract law: mistake, fraud? 13 June 2014 Lam Pak Nian 5 2. BENEFITS AND LEGAL RISKS
  6. 6. Legal risks • Money laundering and terrorist financing – AML/CFT regime: criminalisation, confiscation and reporting • Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA) • Terrorism (Suppression of Financing) Act – Suspicious Transaction Reporting Office • Money changers and remittance businesses: keep records and do due diligence > $5000 • MAS will extend reporting requirements to “virtual currency intermediaries” 13 June 2014 Lam Pak Nian 6 2. BENEFITS AND LEGAL RISKS
  7. 7. Policy considerations • Prudential regulation of financial system – Reduce information asymmetry • Bitcoin is difficult to understand – Promote systemic stability • Reputation risk of financial institutions • Payment methods pose substantial systemic risk as failures impede the ability of parties in meeting their payment obligations 13 June 2014 Lam Pak Nian 7 3. REGULATING WITH A LIGHT TOUCH
  8. 8. Policy considerations • Constructive involvement – Bitcoin is here to stay and impossible to shut down • Encourage beneficial uses and future innovation and meaningfully minimise risks – Impulsive to ban disruptive tech as knee-jerk reaction to illicit activity • Long-term reform – Uncertain laws and regulatory environment hamper breakthrough inventions like Bitcoin 13 June 2014 Lam Pak Nian 8 3. REGULATING WITH A LIGHT TOUCH
  9. 9. Three lenses for regulation • Micro lens: Address specific risks first – Prevent criminal activity via existing checkpoints (also US FinCEN’s approach) • Macro lens: Prudential regulation & stability – Advocacy and advisory to reduce information asymmetry – Promote systemic stability with self-disclosure – Allow laws, rules and confidence to develop • Int’l lens: Coordinate meaningful regulation – BIS’s Basel Committees? IMF? – Sui generis Bitcoin Convention? 13 June 2014 Lam Pak Nian 9 3. REGULATING WITH A LIGHT TOUCH

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