U.S. regulators are slowly rubbing Bitcoin into the existent regulatory framework. New York's 'BitLicense' draft, which recently made head waves for its heavy-handed approach, was yet another reminder that regulation is unavoidable.
PaymentWeek, an information service for the emerging payments industry, hosted an enlightening webinar — regulatory experts discussed challenges of regulation and the future impact on cryptocurrencies. The panel included New York Law School professor Houman Shadab, financial services lawyer Carol Van Cleef, and Visa veteran and current BitPay chief compliance officer, Tim Byun.
Here are some key points from the wide-ranging U.S. regulatory discussion:
U.S. Regulatory Bodies
The panel discussed Bitcoin's complexity. As it can be used for a range of financial activities, it falls under the jurisdiction of a umpteen different alphabet soup agencies. For example, FinCEN oversees money laundering and terrorist financing concerns and the IRS treats Bitcoin as property for tax purposes.
Regulators have yet to implement a standardized approach to complex financial instruments, like securities and derivatives. But they are taking steps; Shadab pointed out that the Security and Exchange Commission brought a suit against someone running bitcoin ponzi scheme even though the contract was denominated in bitcoin rather than dollars.
Getting Licensed
Bitcoin exchanges need to jump some hoops to register as Money Service Businesses. But “existing banks probably would not need a special license,” said Van Cleef, if they choose to get involved in a cryptocurrency. “They would have a significant advantage because they already have the infrastructure in place,” she said.
- Tim Byun, Chief Compliance Officer at BitPay, Inc.
Byun discussed BitPay's role in this, stating:
“We operate under an explicit exemption, which exempts merchant processors from being registered as a MSB.”
Will other states follow down the 'BitLicense' path?
The panelists agreed that while the BitLicense requirements were well-intentioned, they missed the mark. Criticism for New York's BitLicense has lingered on the effects on statewide Bitcoin startups, but Byun said attention has strayed from an important issue. “We are forgetting the population of New York, including the New York consumers” he noted.
The speakers were in less agreement on how other states would respond to BitLicense's model. Shadab expects that while states won't exactly follow the details of the proposed BitLicence, they are likely to follow the “ask permission” approach of the licensing model.
Byun claims that it is too early to say. Texas regulators issued guidance that was a much softer approach than New York. Van Cleef said it was important to consider differences in state power, “Not every state has as broad a mandate as the New York DFS does to come up with a new regulatory scheme for the world of currencies.”
Potential for Self-Regulatory Organizations
Interestingly, they discussed the prospect of a self-regulatory organization (SRO) stepping in as a substitute for government regulators.
- Carol Van Cleef, Partner at Manatt, Phelps & Phillips, LLP
Van Cleef pointed out that the Digital Assets Transaction Authority has stepped up in this way. However she pointed out that venture capitalists are unlikely to invest in this:
“The challenge is whether an SRO could be shaped fast enough to be able to come forward and assert a leadership role in respect to best regulatory practices.”
A Regulatory Blank Slate
- Houman B. Shadab, Professor of Law
The moderator asked what the panelists would do if they had blank slate to work with. Shadab mentioned an academic debate over the value of the U.S.'s financial laws. He went on to say:
“It could make sense to make a universal exemption that applies to [...] virtual currencies, in recognition of the fact that they are unique in ways that we've discussed.”
But he doesn't see that happening. Byun pointed out that regulators need to “leverage laws” already in place without being overburdensome.
Van Cleef noted that regardless of the Bitcoiners' desire with respect to the regulatory framework, “it is important for the community to react to in a positive form and not a negative form, because [regulation] is not going to go away.”
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