R Paul Davis is Group General Counsel for the Counting House Services group of companies, headquartered in Canada, and lives and works in the Isle of Man. A Canadian barrister and solicitor, his practice is specialized in international payments law and technology.
The Isle of Man seems to be setting itself up as a hub for bitcoin-related businesses. The self-governing British Crown dependency is already appealing to conventional businesses and wealthy individuals, and the latest indications are that this fiscally liberal environment will be extended to cryptocurrency-related activities as well.
On Wednesday 26th March, the island's Financial Supervision Commission, responding to a legal opinion written for Canadian clients by the author, confirmed that a bitcoin exchange that holds client funds with a licensed overseas payment service provider is not required to obtain a licence in the country for its activities.
This situation may not last forever, however.
The FSC ruling continues:
“[...] it is possible that legislation could be amended in the future to bring the proposed activities within regulated activity and/or to make the activity subject to the AML Code and thus subject to the draft Designated Businesses (Registration and Oversight) Bill 2014.
It is therefore important that if the client pursues its interest in operating from the Isle of Man that it keeps abreast of relevant legislative changes and remains prepared for these possible eventualities.”
While the thought of operating a digital exchange within the regulatory framework of the FSC might be considered an unwelcome addition to activities, in fact several exchange operators considering the Isle of Man as a base would welcome their business being subjected to regulation.
This would open the doors of at least two specialized island banks who are ready to offer facilities to regulated entities, but not to unlicensed businesses.
Only very minor changes to a statutory instrument, not even primary legislation, could achieve regulation. It is likely, however, that the FSC would want considerable time to enhance its understanding of the field and put appropriate mechanisms and staff training place before taking on a new vertical.
The Isle of Man is highly attractive to e-business not least because of its low tax regime, where resident individuals are taxed at 20% to a maximum of £120,000 per year, while businesses pay no corporate tax and banks only 10%.
The island also boasts massive bandwith and redundancy, with world-class DDoS protection and multiple options for secure hosting.
Long renowned as a safe and compliant financial centre, the cachet of an Isle of Man base is highly desirable and in the wake of the FSC decision, two well-known bitcoin exchanges have already incorporated on the island, have established facilities and are recruiting staff.
Eric Benz of the UK Digital Currency Association has said that up to 15 further exchanges may now seriously consider basing operations on the island.
On 1st April, approximately 30 individuals from the Island with interests in the bitcoin arena, ranging from hosting services and bankers to miners and exchange operators, will meet to form the Manx Digital Currency Association.
Digital currency has attracted strong government interest and the Department of Economic Development, which offers among other things generous grants and support to businesses moving to the Crown dependency, has given serious attention to bitcoin and its relatives in recent weeks.
Many see the Isle of Man as a logical centre of digital currency activity and the excess of power and concentration of financial talent on the island make it a serious contender.
Isle of Man flag image via Shutterstock