The government of Jersey is pushing ahead with plans to pass legislation next year that will establish rules for businesses on the island that work with bitcoin and digital currencies.
The Chief Minister’s Department of Jersey released a policy document this morning that outlines how its approach to digital currency regulation will focus on exchanges, ATMs and other services that connect digital currencies with traditional ones.
Notably, the document outlines the government’s desire to avoid creating a full licensure regime, like New York’s BitLicense, given the nascent state of the technology and the companies working with it. Calling such an arrangement “currently premature”, the government went on to write:
“In considering regulatory options, the importance of balancing the protection of the Island from money laundering and terrorist financing risk against stifling innovation and growth in this emerging sector were at the forefront of consideration.”
The policy statement comes months after Jersey’s government kicked off a public comment period regarding its plans. According to the government’s release, it received feedback from 30 respondents and held what it called “an open seminar” that drew 70 participants. The comment period ran between July and August.
In a statement, Jersey’s assistant chief minister, Senator Philip Ozouf, said he was moving to bring draft legislation to the island’s parliament, the States Assembly, in early 2016.
However, he left the door open to a different regulatory approach in the future, suggesting that the government may return to the issue as Jersey seeks to draw in digital currency companies.
“The policy document on regulation should not be viewed as final; it should be viewed as acting as a starting point,” he said. “Based on the responses to the consultation we think this is a good starting point where Jersey can be the chosen location to both allow existing virtual currency business to innovate and grow whilst attracting new business to our shores.”
Focus on money exchangers
The government’s outline lays out how companies on the island that exchange digital and fiat currencies will fall under statutes governing the activities of money services businesses.
It states that companies “acting as an interface between legacy financial systems and virtual currencies, e.g. virtual currency exchanges and Bitcoin ATM operators” will fall under this definition and would be required to register with the Jersey Financial Services Commission (JSFC), the island’s top finance regulator.
Firms that process more than £150,000 in transactions annually will be subject to JFSC oversight, adhering to compliance rules and paying an undisclosed annual fee. Companies that process less than that amount would be classified as exempt and not be required to undergo the registration process, face active oversight or pay the related fees.
The government is planning to put in place a process through which companies that rise above or fall beneath the £150,000 threshold would have their registration reclassified.
According to the policy outline, the JSFC would have regulatory power over exchange services on the island, including the ability to police those who fall below the £150,000 threshold.
“The JFSC will supervise compliance of virtual currency exchangers with the Money Laundering Order and other AML/CFT legislation – except exempted virtual currency exchangers,” the outline states. “However, the JFSC will still have the necessary powers to investigate exempted virtual currency exchangers compliance with the Money Laundering Order and other AML/CFT legislation – as and when necessary.”
The government stated that this approach meets demands for those calling for so-called financial sandboxes, in which startups working on an experimental scale are allowed to operate without scrutiny in regulatory gray areas.
As part of the effort, the government is forming a new working group in conjunction with Digital Jersey, an industry body based on the island.
The goal of the working group, according to the policy document, is “to monitor the effect of the regulatory policy as technology and the global landscape evolves and also to ensure that industry can communicate with both the JFSC and the Government on the effect of regulation”.
Further, the government is positioning itself to develop future standards for applications of the blockchain beyond payments and digital currencies, stating:
“The Government acknowledges the huge potential of distributed ledger technology to change the future of finance. Whilst no clear route forward in respect of a standard appears to exist at this point in time, we are conscious that the area should be actively monitored in order to ensure that the Island is equipped to adapt to opportunities offered by this emerging area.”
According to the outline, while initial discussions took place regarding such standards, disagreement over what they might look like or how they would evolve over time given the early days of the technology led to a decision to hold off for now. Further investigation on this front is set to be conducted in conjunction with JFSC and Digital Jersey.
The full States of Jersey Regulation of Virtual Currency Policy Document can be found below:
Jersey flag on a flagpole image via Shutterstock