The Isle of Man Financial Supervision Commission (FSC) has clarified the application of existing regulations on bitcoin.
The FSC indicates that digital currency businesses will not be subject to a conduct of business or prudential regime by the commission unless they engage in activities regulated under the Financial Services Act of 2008, such as money transmission services.
The commission warns that there is no such consumer protection for entrants into the digital currency market. It also notes that it is not the appropriate time to introduce such a regime until the market develops and an international consensus on the matter is reached.
AML/CFT rules may apply
The commission’s view is that market participants who do not understand the risks associated with digital currency are involved in a “high risk area” and need to be aware that there is no government protection in place for them.
However, this does not mean that the FSC is merely taking a wait-and-see approach. Some activities involving digital currencies will be affected in the near future.
The FSC says action is imminent:
“In order to ensure that the Island’s international reputation is maintained, it has been decided that certain activities relating to virtual currencies should be brought within the Anti-Money Laundering/Countering the Financing of Terrorism (“AML/CFT”) framework. As a result, certain amendments are currently being planned to Schedule 4 to the Proceeds of Crime Act 2008 which would apply the Island’s AML/CFT legislation to those involved in the virtual currencies market.”
The commission also said it is in the process of drafting a new bill that will provide it with the ability to oversee how digital currency operators comply with AML/CFT legislation.
Industry welcomes regulatory push
The latest FSC announcement is in line with previous statements made by the Isle of Man’s Department of Economic Development and Peter Greenhill, the director of the departments E-Business Development office.
Earlier this year the FSC issued a legal opinion, confirming that bitcoin exchanges are not required to obtain a licence in the country for their activities. The FSC also concluded that money transmission regulations do not cover bitcoin exchange activities.
As a result of the generally positive environment being created for bitcoin businesses, new companies are already starting to appear, with CoinCorner.com recently becoming the first cryptocurrency exchange registered on the Isle of Man earlier this month.
Charlie Woolnough, Chairman of the Manx Digital Currency Association and CEO of CoinCorner.com, told CoinDesk that the statement is just another step toward a regulatory regime that will ultimately benefit the industry.
“It means that crypto-currency businesses already located in the Isle of Man, or those considering establishing businesses there, will gain additional credibility with their clients. It will also no doubt give financial institutions comfort that crypto-currency businesses located in the Isle of Man will be required to have in place similar AML and KYC procedures to themselves.”
Woolnough said the announcement builds on a previous statement from the Isle of Man government and paves the way to the introduction of a regulatory regime that will serve to further legitimise the cryptocurrency sector.
GoCoin’s Eric Benz welcomed the latest FSC announcement, saying it is “in line with their previous statements” in respect to providing a friendly environment to bitcoin businesses.
“The Isle of Man wants digital currency businesses to be there, as it is a safe and secure environment for them to showcase their technology while not engaging in activities which are criminal or damaging to the public. The Isle of Man Government is looking at creating a regulatory regime for digital currency and for this to happen requires primary legislation, which will take time. As it stands now, digital currency related businesses are able to obtain rulings on how they need to comply and operate direct from the Financial Supervision Commission,” said Benz.
He added that GoCoin has been working with Isle of Man authorities to advise and assist them in creating a bitcoin-friendly business environment.