The UK government announced last week that it is taking a proactive step in regulating the cryptocurrency industry. It will introduce “best practices” standards for consumer protection and plans to apply anti-money laundering regulations to UK markets where cryptocurrencies are traded.
Bitcoin is the most widely known cryptocurrency – an electronic form of currency unbacked by any real asset, with a fluctuating value. Cryptocurrencies are independent of any bank or central authority and offer businesses and consumers an alternative medium of exchange to conventional currencies. A growing number of websites now accept Bitcoin as a means of payment and January 2015 saw the introduction of Ireland’s second Bitcoin ATM.
The European Banking Authority issued an Opinion on Virtual Currencies last year which set out approximately 70 risks identified as arising from the use of cryptocurrencies. Many of those risks are unique to the digital sphere and the industry requires a bespoke regulatory response. The EBA has also expressed the need for international, and ideally global, coordination in the regulatory approach given the global internet based nature of cryptocurrencies.
There is potentially a gap in current regulatory regimes in terms of the ability to seize and confiscate digital currency funds where transactions are for criminal purposes. Do you need to seize an entire computer network to prevent the transfer of assets? The Irish government will need to ensure that legislation is in place to encourage the growth of the industry, promote consumer confidence while enabling law enforcement to identify and prosecute criminal activity.
As an emergent industry, certainty in terms of tax treatment of activities involving cryptocurrencies and reassurances in terms of cybersecurity, AML procedures and consumer protection will enhance rather than stifle growth. The UK’s announcement to increase funding into researching cyrptocurrencies by £10million solidifies their intent to make the UK a FinTech capital to be reckoned with. While the announcement last week in the UK was met with enthusiasm by the industry it remains to be seen how the UK will role out and implement the regulatory framework. Will Ireland follow in its footsteps in seeking to promote this innovative industry?
This is something we will watch with interest.
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