Every month, itBit scours the globe to bring you the latest in digital currency regulation and compliance news. Below, our Chief Compliance Officer, Erik Wilgenhof Plante, highlights the key regulations and legislation impacting retail and institutional digital currency investors around the world in the past month.
REGULATORY FRAMEWORK FORTHCOMING
The French Senate released a report at the beginning of the month stemming from a July 23 meeting of the committee on finance. The report suggests that the authorities should come up with a regulatory framework for bitcoin and other digital currencies that is “well-balanced,” so as to prevent abuse but protect innovation. The Senate determined using existing legal categories and definitions would be the best way to accomplish this goal. The report also noted that France was 'middle of the road' when it comes to the strictness of its existing regulations.
Going Forward: The French Senate believes clarification of regulatory framework for digital currencies should take place on the European and, if possible, on a fully international level. French authorities are optimistic regulations could actually create opportunities, such as payment systems and “a decentralized validation protocol.”
USE OF BITCOIN MAY BE ILLEGAL
The National Bank of the Kyrgyz Republic issued a statement warning against the use of bitcoin and other digital currencies, citing the associated risks. The statement also reiterated the existence of legislation that states the country’s “sole legal tender” is the Kyrgyzstan som. As a result, any use of digital currencies within the Republic of Kyrgyz violates existing laws.
Risky Proposition: Taking it a step further, the Bank pointed out that any digital currency user is liable to “assume all the possible negative consequences of the possible violation of the legislation of the Kyrgyz Republic”.
BITCOIN BAN MAY BE ON THE HORIZON
Reports out of Russia suggest that the Russian Finance Ministry is taking steps to ban bitcoin and other digital currencies. The bill would prohibit all “money substitutes, including in electric form.” Supposedly the legislation would additionally make conducting any interactions with digital currencies illegal.
Mixed Signals: Interestingly, similar reports came out of Russia in February 2014, when the Russian Prosecutor General’s Office iterated that bitcoin is illegal in the country since the only accepted currency is the ruble. However, in July 2014, it was reported that the Bank of Russia was gathering information on digital currencies and claimed it would not stand in the way of its usage.
TRANSACTION REPORTING GOES INTO EFFECT
The Unidad de Información Financiera (UIF)’s new regulations affecting digital currencies took effect on August 1, requiring all financial services companies in the country to report all digital currency transactions on a monthly basis.
Unintended Consequences: Unisend, an Argentinian bitcoin exchange company, had its accounts with its two major banking partners shut down unexpectedly. Unisend partner José Rodriguez suspected that the enactment of the new legislation may have had something to do with the sudden account closures by Banco Santander Río and Banco Gailicia.
REGULATIONS PROMOTE USE OF DIGITAL CURRENCIES
Chancellor George Osborne announced new measures the British government will take to promote the use of bitcoin and other digital currencies in the UK. The government will investigate both the potential benefits as well as the potential risks within the UK’s financial sector. Osborne also indicated legislation was forthcoming that would help small- and medium-sized businesses get funding from “alternative finance providers” after getting turned down by traditional banks.
Looking Ahead: Osborne recognizes the growing popularity of digital currencies and stated that he would like to make Britain the "global centre of financial innovation".
GUIDANCE ON BITCOIN TAXATION
The Australian Taxation Office (ATO) released a guidance paper on August 20 providing an overview on tax treatment for bitcoin and other digital currencies. Notably, the guidelines indicate that bitcoin is an asset subject to capital gains taxes, but that the supply of bitcoin is not a financial supply subject to the goods and services tax. Furthermore, people using bitcoin for personal transactions (rather than business purposes) do not have to pay income taxes or goods and services taxes for these transactions.
Required Reading: The ATO suggests that anyone dealing with bitcoin or other digital currencies should read the entire guidance document to determine how it may apply to them, and in cases where it is unclear, the ATO should be contacted.
RESIDENTS CAN PASS DIGITAL ASSETS TO THEIR HEIRS
On August 12, Delaware passed a bill allowing residents of the state to bequeath their digital assets to their heirs when they die, in the same way that financial and physical assets are passed on. The bill specifically “authorizes fiduciaries to access and control the digital assets and digital accounts of an incapacitated person, principal under a personal power of attorney, decedents or settlors, and beneficiaries of trusts” and indicates that the language therein should be “construed liberally.”
Trailblazing Legislation: Delaware is the first state to pass such a law, which applies to all sorts of digital assets, including digital photos, email accounts, and presumably, digital currencies.
BITLICENSE COMMENT PERIOD EXTENDED
New York Department of Financial Services (NYDFS) superintendent Benjamin Lawsky extended the comment period for its proposed BitLicence regulatory framework for digital currency firms for an additional 45 days. The proposed regulations, initially submitted for the original 45-day public comment period in July, include consumer protection, anti-money laundering compliance and cyber security rules. The new deadline for comments is October 21. If there are major changes made to the regulatory language stemming from these comment periods, the amended language will go out for further review and comments.
Work in Progress: Lawsky stated that he had already received “thousands” of comments on the proposed regulations, including from prominent members of the digital currency industry. Many bitcoin supporters had requested extending the comment period as well as a more inclusive review process including public forums.