Bitcoin Regulation Is Still Far Away For America
Conference of State Bank Supervisors (CSBS) is a 100-year-old trade organization for state regulators that primarily concerns itself with representing state regulators interests and dealing with issues facing the industry to federal and state authorities. One of their primary invitations is advocating consistent regulations among the financial industry from state to state.
The organization announced a new focus on emerging financial technologies in February of 2014. They formed a task force for emerging payment systems whose purpose was to research and develop regulations for those new sectors.
“State regulators have proactively established the Task Force to develop and implement a strategy to coordinate state regulatory oversight of emerging payment.” – CSBS President and CEO John W. Ryan.
The task focus was comprised of 9 state regulators, including three from states already developing crypto-currency regulations: Commissioner of California Department of Business Oversight, Jan Lynn Owen; Superintendent of New York State Department of Financial Services, Benjamin Lawsky; and Commissioner of Texas Department of Banking, Charles G. Cooper.
The first result of this task force was a draft for state regulatory framework for digital currency activities recently announced by CSBS.
“State banking and financial regulators have a responsibility for the overall health and strength of financial markets within their states. This responsibility includes articulating the rules of the road for businesses seeking to deploy new financial services that may not readily fit within existing statutory, regulatory, and/or supervisory regimes.”
This draft features 8 key points of interest:
- Licensing Requirements
- Licensing Process
- Financial Strength and Stability
- Consumer Protection
- Cyber Security
- Compliance and Bank Secrecy Act
- Anti-Money Laundering
- Books and Records Supervision
It is very similar to the original BitLicense. This draft contains an unpopular requirement which was originally included in the original BitLicense that requires third party holders of funds to record names, addresses, IP addresses of parties involved, identifiable information of the virtual currency owner, transaction confirmation and the country of destination for international transactions.
“ […] it has nothing to do with the act of sending money. It’s as arbitrary as having a US government official standing at a Starbucks checkout and saying ‘oh you’re paying with cash? No problem, let me just note down your home address, your full name and origin of your cash, and you’ll be on your way’ for every-single-transaction.” – Redditor
“Because of the nascent and evolving nature of virtual currency business models, CSBS stresses the importance of applying the Draft Framework requirements in a manner that includes flexibility to adapt regulation and oversight to yet unforeseen changes–to address new risks and to facilitate and not inhibit continued innovation.” – CSBS
Despite looking to add flexibility to allow for innovation, this draft does not include a special and temporary regulatory framework for startups like the one Lawsky recently added to BitLicense. Fears are that if new startups are forced to comply with the same regulations as big financial institution such as banks, they will never be able to get off the ground.
One aspect seen as positive by the Bitcoin community was the exclusion of non-financial crypto-currency companies.
“[…] the policy statement is not intended to cover activities that are not financial in nature, but utilize technologies similar to those used by digital currency. For example, a cryptography-based distributed ledger system for non-financial recordkeeping would be outside the scope of this policy.” The document went on to read, “ In particular, this policy statement is not intended to cover the merchants and consumers who use virtual currencies solely for the purchase or sale of goods or services.”
The regulatory framework that comes out of this process will not likely be used by larger states like California, Texas, and New York, who have already made headway in designing their regulations for digital currency. Smaller states and territories who don’t have the resources to design their own will likely be the ones who adopt this framework. The organization works with regulators from all US states and territories, including the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands.
Like the BitLicense, the CSBS has allotted a period for public comments on the draft and provided 19 questions for the public to answer. Having started on December 16 and will end on February 16, the comment period will last two months.
Marco Santori, Chairman for the Bitcoin Foundation’s Regulatory Affairs Committee and a lawyer for numerous Bitcoin companies, said on Twitter that this is the beginning of a process similar to the BitLicense. The BitLicense revealed its framework in July of 2014 and is still in the process of finalizing the framework. It recently entered another period of public comments because of recent changes made. While we may see regulation in places like New York by next year, the rest of United States will still be playing catch up with Bitcoin regulation.
On Twitter, Pantera Capital, a Bitcoin focused venture capital and investment fund, suggested that bitcoiners use the comment period to get the document changed, and cited the change the community had on the draft of the BitLicense as support.
What do you think of the state of Bitcoin and Cryptocurrency regulation?
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