A new report on Bitcoin regulations in Canada, claims that sweeping legislative efforts should hold still. The report concedes that regulations are necessary, but determined that new legislative measures would be excessive. Canada's traditional laws already address criminal activities, they found.
Bitcoin runs frequently runs into this problem. Legislators are often tempted to support heavy-handed regulations—stricter than the laws already in place. This is partly to purge illicit activity: money laundering, drug purchases, and fraud associated with the new payment method. But they fail to consider how current laws can deal with this problem, and they focus less attention the damage unnecessary provisions could do to innovation.
The report supports a regulatory regime that contrasts sharply with popular, strict approaches, such as New York's newly proposed scheme called "BitLicense.”
Jillian Friedman, chief legal officer at the Bitcoin Foundation Canada and Joseph Neudorfer, collaborator-attorney co-authored the report “Bitcoin and the law: An analytical report on Bitcoin’s legal and regulatory framework in Canada.” Based on a rundown of current laws, the report concludes:
Based on our observations and analysis, we conclude that Bitcoin does not exist in a
legal vacuum. Therefore, sweeping legislative measures concerning Bitcoin are not
Of course, the Bitcoin Foundation Canada isn't exactly an impartial source. But they make a number of intriguing points. Let's run through some of the points on Bitcoin regulations in Canada.
The gist of the report
Notably, the report contends that Bitcoin “does not exist in a legal vacuum.” After combing through regulations in Canada, they determined that current laws that deal with fraud, consumer protection, and other significant laws, already apply to the digital currency.
At the root of this report is a “functions-based approach,” meaning that legislators need to look at each use case, rather than trying to regulate Bitcoin as a whole. Jillian Friedman said, “legal obligations and constraints regarding Bitcoin should be based on the functions or particular services being performed rather than the technology itself.”
The authors determined that: existing criminal law applies to Bitcoin and is sufficient to deal with fraud facilitated by the cryptocurrency, Bitcoin users are not immune from private contract law, and consumer protection laws that deal with the sale of a good also apply to Bitcoin. The press release summarizes:
Whether or not Bitcoin is classified as ‘money’ does not preclude it from being subject to the principles of private law, criminal law, and, for certain business models, financial services law.
A Word on Money Services Businesses and Recently Clarified Regulations
Last month, new Canadian amendments stirred the Canadian Bitcoin community. The legislation altered Bitcoin regulations in Canada, by amending the definition of money service business (MSB) to include Bitcoin and virtual currencies and will subject Bitcoin to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTF).
The definitions of “dealers of virtual currency” used in the bill is frustratingly vague, so it is unclear how it would impact different types of Canadian bitcoin businesses. It seems to treat Canadian Bitcoin exchanges more like banks, tightens up requirements for identification and record keeping, and subjects transactions of $10,000 or more to increased scrutiny. But the laws will not take immediate effect and feedback is encouraged. In a word, businesses have a little time to adapt to the newly clarified Bitcoin regulations in Canada.
The Bitcoin Foundation report takes an indifferent attitude towards these changes. It finds that:
The activities of digital currency businesses that are similar to money services businesses, such as exchanges, will soon have to play by the same rules as their fiat counter parts.
While some Canadian Bitcoin users might find these regulations frustrating, the report finds that just being Bitcoin does not exempt it from established MSB regulations.
Many hope that with a reasonable regulatory approach, and increased certainty and understanding of Bitcoin regulations in Canada, bitcoin will thrive in the country. Reports like these could help lawmakers on their way. That said, the report does not judge the merits of any of the laws that are currently in place. It simply makes the case that in many areas, the current regulations are sufficient to deal with nefarious activities conducted using bitcoin.
The report “dispels the myth that Bitcoin is not regulated” and they will make use of it at the Senate Banking Committee hearings in October 2014.
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