My most concise yet comprehensive (and digestible) presentation so far on regulation and compliance for Bitcoin and cryptocurrencies. I divided it into four parts: (1) Regulation today, (2) Compliance, (3) Enforcement and (4) Regulation tomorrow. I hope (a) it helps clarify what fintech innovators are faced with, and (b) they get inspired to influence the policy and regulation of the future.

1. Bitcoin
December 4, 2015
Regulation & Compliance
Around the World
Mexico City
@JuanLlanos

3. “anonymity”
“transmission of money or value”
“cash or monetary equivalent”
“value that substitutes for currency”
B i t c o i n  R e g u l a t e d B e f o r e B o r n
© 2015 Juan Llanos

4. Agenda
© 2015 Juan Llanos
1. Regulation today
2. Compliance
3. Enforcement
4. Regulation tomorrow

5. Agenda
© 2015 Juan Llanos
1. Regulation today
2. Compliance
3. Enforcement
4. Regulation tomorrow

6. VALUE
PROPERTY
POWER
© 2015 Juan Llanos
R i s k M a n a g e m e n t 1 0 1
NEGLIGENCE
IMPRUDENCE
MALPRACTICE
ABUSE
L
O
S
S

7. © 2015 Juan Llanos

8. © 2015 Juan Llanos

9. © 2015 Juan Llanos

10. © 2015 Juan Llanos

11. Agenda
© 2015 Juan Llanos
1. Regulation today
2. Compliance
3. Enforcement
4. Regulation tomorrow

12. REGISTRATION
LICENSING
© 2015 Juan Llanos

13. ACTIVITY-BASED
CUSTOMER
JURISDICTION
© 2015 Juan Llanos

14. FORM
SUBSTANCE
© 2015 Juan Llanos

15. 1
2
3
© 2015 Juan Llanos

16. © 2015 Juan Llanos
• Form-substance continuum  substance
• Letter-spirit continuum  focus on spirit (underlying
purpose and values) facilitates compliance without
compromising performance
• Holistic risk management  leverage techfor
everything
• Engineers, not lawyers (sorry, guys)

17. • COMPETITIVE ADVANTAGE  exceptional
compliance attracts favorable reviews from
regulators and bankers .
• REPUTATION  high compliance and internal
controls standards raise the eligibility of the
company for partnerships
• SHAREHOLDER VALUE  a spotless
compliance record reduces the discount a
potential acquiror is likely to apply to the
valuation
“ T h e Va l u e o f a N e c e s s a r y E v i l ”
© 2015 Juan Llanos

18. Agenda
1. Regulation today
2. Compliance
3. Enforcement
4. Regulation tomorrow
© 2015 Juan Llanos

19. conservative vs. progressive
restrictive vs. expansive
misguided vs. enlightened
formal vs. substantial
aggressive vs. permissive
Regulatory & Enforcement
Attitudes
© 2015 Juan Llanos

20. 2013-03-18 F i n C E N I s s u e s G u i d a n c e o n Vi r t u a l C u r r e n c y
2013-05-13 C F T C v o ws t o c o n s i d e r B i t c o i n r e g u l a t i o n
2013-05-13 D H S f r e e z e s D wo l l a a c c o u n t s
2013-05-28 L i b e r t y R e s e r v e i s i n d i c t e d f o r $ l a u n d e r i n g
2013-06-22 FAT F R e p o r t o n N e w P a y m e n t M e t h o d s
2013-06-23 B i t c o i n F o u n d a t i o n r e c e i v e s C & D l e t t e r f r o m C A
2013-07-22 S E C c h a r g e s Te x a s m a n f o r B T C P o n z i s c h e m e
2013-08-12 N Y s u b p o e n a s B i t c o i n f i r m s
2013-10-01 L a ws k y : “ S o B e I t ” i f t r a n s p a r e n c y d o o m s B i t c o i n
2013-10-26 F B I S i l k R o a d B i t c o i n b u s t
2013-12-12 F i n C E N s h u t s d o w n C a s a s c i u s o p e r a t i o n
Regulatory / Law Enforcement Milestones
2 0 1 3
© 2015 Juan Llanos

21. 2014-01-27 C h a r l i e S h r e m a r r e s t e d , i n d i c t e d 3 m o n t h s l a t e r
2014-01-27 ‘ B i l i c e n s e ’ h e a r i n g s a r e h e l d i n N e w Yo r k
2014-01-31 F i n C E N d e c l a r e s m i n e r s & i n v e s t o r s n o t M Ts
2014-02-07 F l o r i d a t a r g e t s ‘ l o c a l b i t c o i n e x c h a n g e r s ’
2014-02-07 M t G o x h a l t s w i t h d r a w a l s
2014-02-24 M t G o x s h u t s d o w n , f i l e s f o r b a n k r u p t c y 4 d a y s l a t e r
2014-02-26 S e n a t o r M a n c h i n ( R - W V ) c a l l s f o r B i t c o i n b a n
2014-03-25 I R S s a y s B i t c o i n a n d V C t o b e t a x e d a s p r o p e r t y
2014-04-08 U S A t t o r n e y G e n e r a l k e e p i n g e y e o n b i t c o i n
2014-04-29 F i n C E N d e c l a r e s c l o u d m i n i n g & e s c r o w n o t M Ts
2014-05-05 U S g o v e r n m e n t t o s t u d y B i t c o i n ’ s t e r r o r i s t t h r e a t
2014-06-06 E u r o p e a n C e n t r a l B a n k c a l l s f o r i n s t i t u t i o n a l c o n t r o l s
2014-06-30 F i n C E N e x a m i n e s r i s k s o f d i g i t a l c u r r e n c i e s
2014-07-14 N Y S i s s u e s ‘ B i t l i c e n s e ’ p r o p o s a l
2014-07-17 E u r o p e a n B a n k i n g A u t h o r i t y e x a m i n e s B T C r i s k s
2014-09-23 U S g o v e r n m e n t s h u t s d o w n B u t t e r f l y L a b s
2014-10-27 F i n C E N r u l e s p a y m e n t p r o c e s s o r s & b r o k e r s a r e M Ts
Regulatory / Law Enforcement Milestones
2 0 1 4
© 2015 Juan Llanos

22. 2015-02-13 Q u e b e c M a n d a t e s L i c e n s i n g o f B i t c o i n S e r v i c e s
2015-03-26 I s l e o f M a n I n t r o d u c e s B i t c o i n R e g u l a t i o n
2015-05-05 F i n C E N F i n e s R i p p l e L a b s f o r B S A Vi o l a t i o n s
2015-05-05 R o s s U l b r i c h t S e n t e n c e d t o L i f e i n P r i s o n
2015-06-03 N Y S R e l e a s e s F i n a l B i t l i c e n s e
2015-07-22 A u s s i e S e c u r i t i e s R e g u l a t o r S t o p s B i t c o i n I P O
2015-08-14 F i n C E N R u l e s A s s e t - B a c k e d To k e n C o s a r e M Ts
2015-09-24 C F T C R e a c h e s S e t t l e m e n t w i t h Te r a E x c h a n g e
2015-09-29 M e x i c o E x t e n d s P a y m e n t R e s t r i c t i o n s t o B i t c o i n
2015-10-21 FAT F Wa r n s B i t c o i n C o u l d F u e l Te r r o r i s m
2015-10-22 B i t c o i n E x e m p t f r o m VAT i n E u r o p e
2015-10-28 R u s s i a P l a n s t o B a n B i t c o i n - t o - F i a t C o n v e r s i o n s
2015-11-12 Wa s h i n g t o n S t a t e I s s u e s C o n s u m e r Wa r n i n g
2015-12-01 S E C C h a r g e s G AW M i n e r s C E O w i t h S e c t s F r a u d
Regulatory / Law Enforcement Milestones
2 0 1 5
© 2015 Juan Llanos

23. Agenda
1. Regulation today
2. Compliance
3. Enforcement
4. Regulation tomorrow
© 2015 Juan Llanos

24. RETHINK
REDEFINE
REINVENT
© 2015 Juan Llanos

25. PARADIGMS
questioned
m o n e y
s o v e r e i g n t y
s e c u r i t y
r e g u l a t i o n
p r o p e r t y
i d e n t i t y
l a w
g o v e r n a n c e
© 2015 Juan Llanos

26. A M L / C F TTODAY
- national security and crime deterrence are top public policy
priorities
- unintended consequence → selective inclusion facilitates
fiscal surveillance but creates financial exclusion of
underprivileged
- stick over carrot (heavy hand)
- Anonymity is anathema
TOMORROW
- carrot over stick (lighter hand)
- measure proportion and results
- layered, zero-knowledge, identity systems could meet both
law enforcement and civil liberties goals © 2015 Juan Llanos

27. I D E N T I T Y
TODAY
- Countries have the monopoly over a person’s identity (mostly,
for fiscal reasons)
- Not all countries have reliable identification systems
- Government-issued IDs are not necessarily effective in
deterring crime/unmistakably identifying humans
TOMORROW
- Alternative identity systems that transcend borders and
facilitate identification of previously disenfranchised persons
- Identity systems that balance both transparency and privacy
(ID3/Windhover Principles)
© 2015 Juan Llanos

28. P R I VA C Y
TODAY
- Radical transparency jeopardizes privacy
- Slowly being eroded via tax compliance regulations, elimination
of secrecy havens, digitization of money
TOMORROW
- Leverage zero-knowledge proof technology → tokenization
(Windhover Principles)
- Privacy without anonymity = pseudonymity (first payment; then,
identity)
© 2015 Juan Llanos

29. S E C U R I T Y
TODAY
- role-based access control
- Digital tokens are bearer instruments: lose the key, lose the
asset forever
- Information security risks increase with digitization
- Network-centric
TOMORROW
- customer-centric custody and security (via multi-signature
escrow)
- Device/Machine-centric
© 2015 Juan Llanos

30. © 2015 Juan Llanos

31. A successful algorithmic regulation system has the following
characteristics:
1.Desired outcome
2.Real-time measurement
3.Adaptive algorithms
4.Deeper analysis
A l g o r i t h m i c R e g u l a t i o n *
* Tim O’Reilly, “Open Data & Algorithmic Regulation” (in Beyond Transparency)
© 2015 Juan Llanos

33. INNOVATE
IMPLEMENT
INFLUENCE
© 2015 Juan Llanos

34. © 2015 Juan Llanos
Proof that Influence Works
“ N o n - B a n k F i n a n c i a l I n s t i t u t i o n s , i n c l u d i n g t e l c o s , a r e
o b t a i n i n g f a v o r a b l e r e g u l a t o r y t r e a t m e n t w o r l d - w i d e a n d
c o m p e t i n g h e a d o n w i t h e s t a b l i s h e d d e p o s i t a r i e s . ”
Hugo Cuevas-Mohr

35. conservative vs. progressive
restrictive vs. expansive
misguided vs. enlightened
formal vs. substantial
aggressive vs. permissive
Regulatory & Enforcement
Attitudes
© 2015 Juan Llanos

36. INNOVATE
& Reinvent the World
INFLUENCE
Public Policy
IMPLEMENT
Mandatory Rules
Responsible
Evolution
© 2015 Juan Llanos

37. “Forget the negative attacks on governments
or banks. It’s a war that cannot be won and
making such powerful enemies does
Bitcoin no favours. The tech and the
companies operating it need to focus on
making the transition to bitcoin
irresistible and inevitable.”
Dominic Frisby© 2015 Juan Llanos

38. @JuanLlanos
Thank You