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."
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