After
several years in which the cryptocurrency industry operated largely without
supervision—years which were either the Golden Age or the Wild West, depending
on your perspective—governments around the world are beginning to take steps
towards the regulation of virtual money. Canada, in particular, is poised to
become a global hub for the cryptocurrency industry, and new regulations in the
space will undoubtedly impact businesses here.
In
Canada, amendments to the Proceeds of Crime (Money Laundering) and Terrorist
Financing Act (PCMLTF) that passed in 2014—but are still not in force—will
require businesses “dealing in virtual currencies” to register with the federal
financial intelligence unit, FINTRAC, and implement an anti-money laundering
compliance regime. Banks will be prohibited from providing services to
businesses not registered with FINTRAC as well.
Now,
the federal government is once again looking at updating its laws around
cryptocurrencies, money laundering, and terrorist financing. At a parliamentary
hearing on Monday, one cryptocurrency expert expressed concern that excessive
or inappropriate regulation beyond these requirements will stifle innovation.
FINA,
the Canadian government's Standing Committee on Finance, convened in Ottawa on
Monday for one of a series of hearings reviewing the PCMLTF Act. The last
review, in 2013, led to the as-yet-unenforced 2014 amendments around
cryptocurrencies. A FINA discussion paper from February reviewing the Act notes
that much has changed since 2014, when one bitcoin was worth $850 USD (now
$8,500). “Since then,” the paper notes, “considerable work has been undertaken
to develop technical and, in many cases, novel regulations in this space.”
These
regulations around cryptocurrencies will be “subject to public consultation
once they are pre-published in the Canada Gazette,” a publication of the
Canadian government, according to FINA’s discussion paper. It doesn’t say
exactly when the regulations will be published for public scrutiny (Canada
Gazette publishes proposed regulations every Saturday).
After
the hearings are concluded, the committee will draw up a final report of
recommendations on updating PMCLTF for the House of Commons. Monday’s
three-hour hearing was largely held behind closed doors, finishing with a
30-minute public session.
The
US isn’t far behind Canada on this front; in 2017, US Congressman Chuck
Grassley proposed the Combating Money Laundering, Terrorist Financing, and
Counterfeiting Act of 2017, which would target virtual currencies if made law.
Jonathan
Hamel, founder of the Montreal-based training and consultancy agency L'Académie
Bitcoin, was invited to address the panel as a representative of the
cryptocurrency sector. As a cryptocurrency advocate, Hamel made the argument that
the 2014 amendments are adequate to prevent money laundering.
"Bitcoin
itself is not regulated, but the peripheral actors you use as a customer to
enter or exit the network are licensed as money service businesses, so they're
required to register all transactions," he told the committee during the
public session.
The
main concern for proponents of cryptocurrency is that regulation will be
introduced in a way that will stifle innovation in the sector, as Hamel tweeted
before the hearing. In China, a major hub for cryptocurrency innovation and
infrastructure, the government has begun to ramp up a widespread clampdown on
cryptocurrency. For example, last year the government restricted trading on
exchanges, pushing market leaders OKCoin and Huobi to launch
cryptocurrency-only sites, OKex and Huobi Pro respectively. Increasing scrutiny
may have kicked off an exodus of the mining operations that have thus far
dominated the global market. Bitmain, one of the world’s largest Bitcoin mining
and hardware firms, has reportedly been in talks with Quebec’s energy
regulator, for example.
In
the US, regulatory authority is emerging not so much as a patchwork but a
casserole; the Securities and Exchange Commission, the Commodities and Futures
Trading Commission, and individual states are all more or less concurrently
policing the industry. Meanwhile, Coinbase, one of the largest cryptocurrency
exchanges, is waiting “for the dust to settle” in the regulatory fracas.
The
apprehensions of Canadian cryptocurrency enthusiasts won't be quelled by
yesterday's hearing, which at times became something of a cryptocurrency 101
tutorial. ("Where does Bitcoin reside? Where can I find it?", asked
committee chair and Member of Parliament Wayne Easter at one point, to a
clearly amused Hamel.)
At
the other end of the spectrum, Pierre-Luc Dusseault, a 26-year-old MP for
Sherbrooke, Quebec, began by stating his gratitude to the blockchain
industry—understandable, given that Bitfarms, a Quebec-based cryptocurrency
mining company, has just announced a plan to make an investment of $250 million
into a facility in his constituency.
Indeed,
companies like Bitfarms, Hut 8 (which is taking over American company Bitfury’s
mining operations in Alberta), and others are aiming to make Canada a global
hub for blockchain technology. If this is to happen, the industry will need to
work out how best to collaborate with the government on policy: A 2015 report
from the Canadian Senate encouraged “light touch” regulation of Bitcoin, but
far more physical and virtual cryptocurrency infrastructure has moved to Canada
since then. There's only so long that a such a rapidly growing industry can
champion an anti-regulation stance.
In
a phone call with Motherboard after the hearing, Hamel said he was happy with
the ground that had been covered, but expressed frustration at politicians’
continued skepticism towards cryptocurrencies.
"After
10 years of organic growth and institutional adoption, we still see a lot of
scrutiny and doubt towards Bitcoin from regulators," Hamel said. "At
some point, we have to accept that it's part of the financial landscape and
move on."