This morning Douwe Miedema, a reporter with Reuters, is reporting that a U.S Government watchdog has told the U.S. Financial Protection Bureau, a primary Consumer Agency, that they should play a bigger role in protecting and shielding consumers from risks associated with virtual currencies. Reuters have also reported that Federal Regulators have begun to work together to gauge the level of risks associated with cryptocurrencies. This is the first time that a U.S. Government consumer agency has been told to prepare to protect consumers that choose to shop using a currency that was generated by a means outside of the role of governments. The GAO report was requested by Tom Carper, a Democrat from Delaware. Mr.Carper chairs The Senate Committee on Homeland Security and Government Affairs, and is conducting its own investigation into Bitcoin.
To date the Government has been mainly concerned with investigating virtual currencies with the view of the prevention of money laundering. The U.S. Consumer Financial Protection Bureau has not been involved in these investigations to date and the fact that it is now being prepared to weigh in on the side of virtual consumers clearly adds confidence. The U.S. Financial Protection Bureau was set up as a consumer agency to protect consumers following the 2007-2009 financial crisis.
“Recent events suggest that consumer protection is an emerging risk,” the report by the Government Accountability Office said. “However … participation by the federal government’s lead consumer financial protection agency, CFPB, has been limited.”
It has been recommended that in order to heighten consumer protection the Consumer Financial Protection Bureau should participate in inter-agency discussions. The CFPB has agreed to these recommendations. Recent developments in the world of cryptocoins such as the collapse of Mt. Gox, a Tokyo-based Bitcoin exchange, and the loss of (or possibly the theft of… or maybe just the misplacing of…) $650 million worth of client Bitcoins. Clearly issues here well beyond the role of a consumer agency!
To date, U.S. Government’s federal regulators have said little regarding Bitcoin. The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) last year moved to describe administrators or exchangers of Bitcoin as Money Transmitters, and this brings them directly under the remit of state regulators.
Reuters reports that: “The Commodity Futures Trading Commission is studying whether it has jurisdiction, given that some firms are considering offering Bitcoin derivatives. The U.S. Internal Revenue Service has designated Bitcoin as property, not currency.”
When we look at the Federal auction of some of the ‘Silk Road’ bitcoins this weekend, all sold, as well as this regulatory development we must conclude that the world of cryptocurrencies is fast going mainstream. It has been the reality that there were many charlatans, both companies and individuals, operating on the margins of our world and buying with crypto has often been found to be far from secure. The legislation that governs consumers was drawn up in a time ignorant of virtual currencies and it is almost impossible to enforce a breach of contract, in what is, de-facto, an irreversible transaction.
This involvement of a consumer agency can do nothing but act to increase consumer confidence and by doing that it must positively affect the value of our currencies.
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