Signals are emerging that Canada is about to tighten its grip on bitcoin and other decentralized digital currencies. The country's finance minister Jim Flaherty singled out bitcoin by name in his federal budget today, and announced forthcoming laws that would regulate it.
"It is important to continually improve Canada's regime to address emerging risks, including virtual currencies, such as Bitcoin, that threaten Canada's international leadership in the fight against money laundering and terrorist financing," said Flaherty in the budget document.
The budget went on to promise "anti-money laundering and anti-terrorist financing regulations for virtual currencies, such as Bitcoin."
When such laws emerge, they will most likely be developed by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), which is the country's financial intelligence unit, responsible for preventing money laundering and other financial acts that could support terrorism.
Changing attitudes to bitcoin
FINTRAC has practically ignored bitcoin since its inception, but things may be changing. An internal report from the organization, obtained through an Access to Information request, has revealed that the agency is contemplating a range of regulatory measures.
Options that the agency may be considering include an potential plan to "choke bitcoins oxygen" [sic] by denying Canadians access to foreign exchange markets, said reports. It is also said to have considered forcing bitcoin exchanges underground, but acknowledges the potential downside for consumers.
FINTRAC's hands-off approach has enabled numerous start-ups to flourish in Canada, said Michael Patryn, director of the Vancouver Bitcoin Co-Op, and of new Vancouver bitcoin exchange QuadrigaCX. "Entrepreneurs are comfortable with their country's regulatory stance, and are therefore able to offer new services and create new jobs without the burden of excessive regulatory requirements stifling their innovation," he said
Jesse Heaslip, who runs Vancouver-based white label exchange software company Bex.io, also argued that FINTRAC's hands-off approach has been a good thing for the industry.
"When I compare where Canadian entrepreneurs are focusing their attention in the bitcoin ecosystem compared to our American counterparts there is no question that we are spending more time, effort and energy on innovation," he said, pointing to projects like Ethereum, CoinKite, and his own Bex as home-grown examples.
“They need to make a decision and figure out what regulations need to be or not be in place, sooner rather than later.”
FINTRAC has been so hands off in the past that Canadian exchanges have had a hard time getting it to take notice of them. Mike Curry, founder of Toronto-based Vault of Satoshi, tried to apply for an MSB license last year, but was refused, on the basis that as a bitcoin business he didn't need one. It's time for some clarity, he said.
"Thus far we've been treating digital currency with the same care as we do with fiat (in terms of AML/KYC)," Curry acknowledged. "I think they need to make a decision and figure out what regulations need to be or not be in place, sooner rather than later."
Like many south of the border, Heaslip wants consistency. "The best possible outcome would be if there was one global license that was required rather than having an application for each individual country and or state," he said. "That would limit the mental and financial burden on entrepreneurs around the regulatory issues and allow us to focus on innovation in the marketplace."
Eric Spano, director of finance at the Montreal-based Bitcoin Embassy and a director of the Bitcoin Alliance of Canada, said that the Canadian government had let bitcoin breathe for a while without regulatory smothering, and welcomed the next step.
"Now that Canada is becoming a hub for Bitcoin enthusiasts and businesses, we're very happy to see FINTRAC's interest in the technology," he said. "The establishment of a regulatory framework that mitigates money laundering and fraud risks, while continuing to enable Canadian businesses and startups to create innovative technologies and services, will continue to attract talent and venture capital from around the world."
When FINTRAC turns its attention to a subject, it has a history of aggressive reporting. Two separate audits have found the agency to exceed its mandate when pursuing and storing personal information, for example. It was discovered to have been processing reports of financial activity without explaining why they should have been considered suspicious. The Canadian bitcoin community will be watching its next move with interest.
Canada image via Shutterstock