May was a quiet month around most of the world when it came to Bitcoin regulatory activity. But in the United States, many states were busy working to strengthen existing digital currency legislation or, in the case of New York, break new regulatory ground.

United States

New York

The New York State Department of Financial Services granted itBit a trust charter, making itBit the first and only regulated bitcoin exchange able to accept US customers nationwide. Read more about itBit’s US launch and trust charter.

Connecticut

Connecticut’s House of Representatives passed a bill that would give state regulators greater power to oversee the use of digital currency within the state. Namely, the bill would require any business attempting to get a money transmission license from the Connecticut Banking Department to more specifically define any plans for offering digital currency. State regulators would then have the power to approve or deny the request based on their analysis of the risk associated with the businesses plans for digital currency use, even if the applicant is otherwise qualified.

According to the bill’s language, “The bill allows the commissioner to place additional requirements, restrictions, or conditions on the license of an applicant involved with virtual currency.” The bill will still require approval in the Senate and approval by the state’s Governor.

North Carolina

The state’s House of Representatives is pushing a bill that would seek to enhance regulation of digital currencies such as Bitcoin. House Bill 289 would effectively replace older language that addresses money transmission outside of business purposes and create a new Money Transmitters Act.

When asked about the new bill, a representative from North Carolina’s Commissioner of Banks told Coindesk, "Like existing law, the bill requires bitcoin transmitters to obtain a license from our office. The Bill, however, clarifies that only virtual currency transmission involving a personal, family or household purpose (as opposed to business-oriented transmission) is subject to the Money Transmitters Act. It also defines virtual currency consistently with federal financial regulation."

California

Officials in California made contradictory statements about the future of digital currency regulation within the state. The California Department of Business Oversight was initially quoted by Bloomberg as saying that they would not pursue regulating digital currencies such as Bitcoin, but would instead pass the task off to the state legislature.

Soon after, a DBO spokesperson walked back the proclamation in a conversation with Coindesk saying, "We haven't made a decision. We're still in the process of how or if at all to regulate virtual currency business under our current statutory scheme." No formal decision about digital currency regulation within the state has yet been made public.

New Jersey

A new proposal in New Jersey calls for the state legislature to approve tax breaks for Bitcoin businesses in the name of job creation.

The bill, known as the Digital Currency Jobs Creation Act, seeks to create a regulatory framework around digital currencies but to also create incentives and tax opportunities that would make it easier for the industry to thrive and grow within the state. "I want to encourage innovation here in New Jersey. I think there's an opportunity for job creation," said Assemblyman Raj Mukherji, who introduced the bill along with a colleague.

Part of the bill would allow for currency miners to receive tax breaks on energy and utility bills. Language from the bill reads, “Receipts from retail sales of energy and utility service to a digital currency servicer or a company registered under 'The Digital Currency Job Creation Act' for use or consumption directly and primarily in the creation of digital currency, including mining, shall be exempt from the tax imposed under the 'Sales and Use Tax Act.'”

Around the Globe

Russia

Russia has lifted their ban on Bitcoin online information. Earlier in the year the Roskomnadzor, Russia’s equivalent of the FCC in the U.S., banned access to a number of top bitcoin websites. The reversal of the ban may be a moot point if the Russian government proceeds with fully banning the use of Bitcoin.

Sweden

Sweden has implemented formal tax regulations for Bitcoin mining operations. Miners will be taxed if they meet any of the following criteria put forth by Sweden’s Tax Authority:

Carry out the mining in a professional and cost-efficient manner over a longer period with appropriate equipment.

The activity is expected to create a surplus as measured over the full financial calculation period.

The computing capacity can be expected to generate more than 25 bitcoins a year (or the equivalent value in form of transactional fees or other virtual currency).

These taxes set a baseline for the Swedish government in regulating digital currencies going forward.

itBit was granted a trust charter by the New York Department of Financial Services last week. What does that exactly mean? Houman B. Shadab, a professor at New York Law School and the Editor-in-Chief of the Journal of Taxation and Regulation of Financial Institutions wrote an excellent article on the subject. It answers some interesting questions that have cropped up in the media concerning the status of the charter outside the state of New York. You can read it here 

Exploring and understanding the uses of digital currency was a key theme around the globe in March. Finding ways to fit digital currency under the umbrella of existing laws and regulations, particularly with respect to anti-money laundering efforts, was also a major push seen in several countries.
North America

California

Bill proposes license requirement for bitcoin businesses

A bill introduced in the California legislature would prevent digital currency businesses from operating in the state unless they have been licensed by the Department of Business Oversight and received an exemption.
The bill comes from Assemblyman Matt Dababneh, chairman of the California Banking and Finance Committee. A spokesman for the assemblyman told CoinDesk, “This bill is something that has been in the works in the state for a couple of years, and as the leader of that committee, Matt dedicated himself on the issue and thought it was the right move to make for the state of California at this time.”

Licensing requires businesses to pay a non-refundable $5,000 for registration and also ask companies to hold a certain portion of their funds in “investment-grade permissible investments.”
Asia

Hong Kong

Official says legislation not needed for bitcoin regulation

Secretary for Financial Services & the Treasury Prof KC Chan said that because bitcoins are not widely used in Hong Kong, legislation that would ban or regulate virtual commodities from trading remains unnecessary.

In his statements, Chan reiterated that such currencies were speculative, and thus posed a risk to users. He also noted that his office would keep a watchful eye on digital currencies and said that, should the need arise, regulators could utilize existing laws to deal with issues of fraud or crime related to digital currencies.
Europe

U.K. 

Report on digital currency regulation released

The U.K. Treasury Department released a report about digital currencies in March, which outlined current views on digital currency and noted potential regulatory actions. According to the report, “The government considers that digital currencies represent an interesting development in payments technology.” The report also goes on to say that such currencies could have advantages for micro-payments and cross-border transactions.
The document also relays plans to apply Anti-Money Laundering laws to digital currencies. The government would seek comment on the potential action, and its impact, later this year.
Isle of Man: Regulation for digital currency introduced

Starting on April 1, digital currencies operating in the Isle of Man will be subject to the country’s AML laws after the government amended the 2008 Proceeds of Crime Act to cover bitcoin companies.

According to CoinDesk, that means that those operating in the digital currency business will have to adopt certain know-your-customer (KYC) practices. This includes collecting ID information, which would be given to the authorities if money-laundering activity is suspected.
The country is also set to amend the Designated Businesses (Registration and Oversight) Bill 2014, which would subject digital currencies to required registration and oversight by the Isle of Man Financial Services Commission.
Around the Globe

FATF takes a pragmatic view on Bitcoin

The Financial Action Task Force has indicated that banks should take a risk-based approach when it comes to opening bank accounts for Bitcoin companies. The regulatory think tank has warned of the risk of virtual currency in the past.
The FATF has published a report that establishes a conceptual framework of key definitions to form the basis for further policy development.

Exploring and revising digital currency legislation were the key trends in February. A number of state and federal governments continued to do their due diligence with hopes of identifying the best way to regulate bitcoin usage and digital currency companies.

North America

New York: Revised BitLicense Proposal

The New York Department of Financial Services (DFS) introduced its revised proposal for the BitLicense legislation.Several changes were made following the last round of comments on the previous iteration of the proposed legislation, including but not limited to the following: Companies that use digital currencies for non-financial purposes, such as miners and technology firms, will no longer be required to register for a license. The two-year conditional BitLicenses that will be available to startups and small businesses will now be eligible for renewal if a company continues to meet the operating criteria. The proposal also includes a requirement that firms report suspicious transactions to the DFS.
Changing Requirements: The requirements that licensees report addresses and other data from all transactions have been removed. These firms will only be require to record information from their own customers. The licensees must also disclose the risks of digital currencies to their customers.

New Jersey: Exploring Regulation

Earlier this month, New Jersey lawmakers held a panel on bitcoin with nine business owners and legal experts to discuss the potential approaches to regulating digital currencies. Legislators asked the panel, which included itBit CEO Charles Cascarilla, about the advantages and risks of bitcoin and about how other states have approached the technology thus far. Marco Santori, global policy counsel for Blockchain.Info, outlined the main approaches that other states have taken in digital currency regulatory guidance and suggested a new approach for New Jersey, one that considers new legislation that would incentivize digital currency businesses to base themselves in the state, balanced with assurances that these businesses will be monitored in how they manage money.

Clarity Above All: 

Regulatory clarity seemed to be important to all panel members. Coin Center’s Jerry Brito, for instance, strongly urged clarification in how existing regulations apply to bitcoin, as well as encouraging an eye toward innovation in future legislation.

Vermont: Shuts Down Lone Bitcoin ATM

Vermont Department of Financial Regulation Commissioner Susan Donegan spoke with CoinDesk following the controversial decision this month to shut down Vermont’s only operating bitcoin ATM. Donegan claimed the issue was that the company operating the machine was not licensed in Vermont. Title 8, Chapter 79 of the Vermont Statutes, which deals with money services, references “monetary value evidenced by digital record,” which the state believes applies to bitcoin and other digital currencies. Donegan believes bitcoin falls under the definition of monetary value, even if it is neither currency nor money.

Face-To-Face Contact: 

Under the existing legislation, digital currency businesses must meet with the state to discuss their business plan before getting licensed.

Canada: New Digital Currency Regulations in Quebec

Québec has enacted new regulations governing digital currency in the province. As of this month, any business operating either a bitcoin ATM machine or a platform by which digital currency is traded must obtain a license issued by the Autorité des Marchés Financiers (the “AMF”).
Existing Regulations Evolving: The AMF has modified the policy statement of its previously existing Money-Services Businesses Act of 2012, which regulates people and entities who operate any money-services businesses in Québec.

Europe

Spain: Proposal for Bitcoin Regulation

Unión Progreso y Democracia, a social liberal political party in Spain, submitted a proposal for bitcoin legislation to the Spanish Congress in January. The submittal outlined the risks inherent in digital currencies and outlined the importance the party believes regulation will have upon improving security and preventing fraudulent and criminal activity.
Slow But Steady Progress: The Spanish government had ruled back in September 2014 that bitcoin and other digital currencies should be treated as electronic payment systems.

Italy: Bitcoin Intermediaries Asked to be Cautious

The Financial Intelligence Unit (FIU) of Italy’s Central Bank issued a public statement on February 2, stating that since those dealing with and in digital currencies are not subject to money laundering legislation in the country, those intermediaries dealing with bitcoin and other digital currencies should exercise prudence and evaluate such transactions carefully, reporting any suspicious transactions to the FIU whenever possible.

High Levels of Responsibility:

The FIU stressed that it is the responsibility of those required to report suspicious transactions to raise awareness among those staff members responsible for the evaluation of suspicious transactions, and to develop appropriate means of evaluation.

Isle of Man: Law Amended to Address Digital Currencies

Brian Donegan, the Isle of Man’s head of operations for digital development and e-business, told CoinDesk that the 2008 Proceeds of Crime Act is in the process of being amended to address bitcoin and other digital currencies. The proposal will be put in front of the island’s parliament for approval at some point later this year.
Hurry Up and Wait: It was first reported back in July 2014 that the Isle of Man government was in the process of attempting to address concerns with the effects of digital currencies on existing regulations. It appears the island is now close to achieving some semblance of regulation in this area.

December was a busy month for digital currency regulation in the United States as Congress and a number of states were actively involved in creating and passing legislation. Outside of the U.S., the regulatory climate improved for bitcoin exchanges in Australia while the hardline stances taken by India and Russia towards digital currency thawed a bit.

United States

Feds Get Involved in Digital Currency Regulation
A new bill has been submitted to Congress by US Representative Steve Stockman regarding digital currencies. HR 5777 proposes holding off on enacting any statutory restrictions or regulations regarding digital currencies for a five-year period beginning June 15, 2015. The bill also proposes changing the taxation of bitcoin mining to apply at the point of conversion rather than at the point of creation.

Other Federal Involvement: While the Commodity Futures Trading Commission does not have specific policies or procedures that apply to digital currencies, Timothy Massad, its chairman, recently testified before a US Senate committee and stated that digital currency derivatives fall within his agency's jurisdiction. Massad noted that the agency’s broad definition of “commodity” could apply to derivatives linked to currencies.

Framework for State Regulation
On the state side of things, the Conference of State Bank Supervisors (CSBS) developed a Draft Model Regulatory Framework to support consistent state regulation of digital currency activities. They have requested feedback to help inform state regulators as the CSBS works to develop a regulatory structure for digital currencies. Comments will be accepted until February 16, 2015. Comprehensive Framework: The Draft Framework includes, among other things, licensing requirements, cyber security requirements and consumer protection guidelines.

California Officially Makes Digital Currency Use Legal
A new finance bill was ratified in the state of California stating that other national and digital currencies can now legally be used in the state. Previously, only US dollars were officially recognized in California.

Further Developments

Earlier in December, the Department of Business Oversight spoke about their work toward determining whether the bitcoin industry should be regulated by the state. The Department had previously determined that it did in fact have the power to regulate digital currencies.

Latest Round of BitLicense Revisions Announced
In New York, State Department of Financial Services superintendant Benjamin Lawsky recently announced the latest round of revisions to the Department’s proposed BitLicense language. The new version of the regulation includes a shorter record-keeping requirement period and requires less in the way of data collection from licensees. Once the full revisions are completed and posted, there will be another 30-day comment period.

No Sales Tax: Meanwhile, the state’s Department of Taxation and Finance recently announced that though certain taxes and fees would apply, digital currency transactions will not be subject to sales taxes.

Australia
Digital Currencies Are Not a Financial Product
The Australian Securities and Investment Commission (ASIC) released a report this month. In it, ASIC determined that bitcoin and other digital currencies do not fall within the current definition of financial product. As a result, bitcoin exchanges do not need to maintain any license.

Full Statement Still Forthcoming: The Australian Senate plans to release a full report of their findings in March 2015.

Brazil
Report Examines Potential Impact of Digital Currencies
The Federal Senate of Brazil commissioned a study to determine what the potential impact of digital currencies on the Brazilian economy. The 18-page report was authored by Cesar Rodrigues van der Laan, a researcher at Banco Central do Brasil, and concludes that currently there is no need for Brazil to regulate bitcoin.

Looking Toward the States: It is also recommended in the report that should digital currency usage spread in Brazil, United States policies with regard to bitcoin taxation should be used to develop a regulatory solution.

Russia
Response to Russian Bitcoin and Digital Currency Ban
The Russian Ministry of Finance previously announced plans to ban bitcoin and other digital currencies, then announced reductions in fines for ignoring those bans. The Russian Ministry of Economic Development responded this month by stating its belief that the ban could have a negative impact on the Russian economy.

Unintended Consequences: Specifically, as the law has been drafted, retailers, telecom operators and banks may find some of their current marketing campaigns caught in the crossfire.

India
Digital Currency Adoption Inevitable in India
Raghuram Rajan, Governor of the Reserve Bank of India, gave a television interview in which he discussed digital currencies, and his belief that India will inevitably adopt digital currencies in the future.

Future Regulations: There is some speculation that India may be exploring options for a system where people could use bitcoin through a government approved intermediary.

Estonia
Estonia Reaffirms Position on VAT
As part of an ongoing bitcoin tax case before the European Court of Justice, Estonia reaffirmed its position that Value Added Tax (VAT) should be applied to the full amount of bitcoin trades rather than just to the commission or service fees.

Court Ruling Imminent: The Court will determine whether or not VAT is applicable to bitcoin under the European Union's VAT directive, which outlines which transactions should be subject to VAT. 

The Swedish tax authority has taken the position that bitcoin is not VAT exempt.

Regulatory Roundup November 2014

November saw ample regulatory activity throughout Europe as governments worked to learn more about digital currencies and clarify tax issues related to the value-added tax (VAT). Russia and Ukraine continued on the path to officially banning digital currencies for payment while the Australian government began exploring ways to optimize digital currency use.

United States

The Consumer Financial Protection Bureau (CFPB) published a set of proposals on prepaid debit cards that may apply to digital currencies as well, specifically as they relate to digital wallets. The CFPB is still in the process of examining the full impact of digital currencies, as it has been since it released an advisory on the subject back in August.

Other Agencies Get in on the Act: Elsewhere in the government, a Commodity Futures Trading Commission (CFTC) commissioner stated that the agency has the authority to enforce actions against price manipulations in digital currency markets.

Australia

The Australian Senate began its hearings on digital currencies on Wednesday, November 26. The Senate inquiry included testimony by international experts, including Perianne Boring of the United States Chamber of Digital Commerce, and is aimed at maximizing the potential of digital currencies in the Australian economy while avoiding risks as much as possible.

Further Developments

The timing of these hearings follows soon after the Department of Human Services began requiring Australian pension applicants to declare their digital currency assets as part of the application process.

Russia
The Russian Finance Ministry announced its plans to ban bitcoin and other digital currencies back in August 2014. The ministry recently released more information on those proposed bans. After a public discussion of the proposed bill was held, the Ministry decided to reduce the fines to be levied for the use of digital currencies in Russia.

Motivations Unclear 
The penalty amounts are significantly lower than initially proposed but there do not appear to be specific reasons given for the numbers chosen, or why they were lowered at all.

United Kingdom
The UK government is officially looking into the potential benefits and risks of digital currencies as the Treasury issued a “Call for Information” on November 3, 2014. The official inquiry asks thirteen questions about digital currency usage and focuses primarily on digital currencies as payment mechanisms, with less attention paid to speculative investment.

Fact Gathering
The government will cull information from the public, FinTech firms, the financial services industry, regulators and law enforcement agencies. They will then examine the benefits and risks in determining what, if any, regulatory action needs to be taken. The Call for Information closes on December 3, 2014.

France
The French Autorité de Contrôle Prudentiel et de Résolution (ACPR) held a conference at the beginning of November to clarify its stance on licensing and reporting requirements for businesses in France engaging in digital currency transactions.

Waiting on EU Regulations: Ultimately, the ACPR confirmed that France will follow the European Banking Authority’s lead in developing substantial regulations. The ACPR monitors banks and insurance companies and is linked to France’s central bank.

The Netherlands
The Dutch Minister of Finance indicated recently that he did not believe that bitcoin transactions would be subject to the value-added tax (VAT) in the Netherlands. Though not an official position of the Ministry of Finance, it was confirmed that they are considering this exemption as an option, and it will have to go through the usual procedures. This includes commentary from tax advisors and businesses.

Traditional Transactions: If bitcoin becomes VAT-exempt, only the goods and services portion of a digital currency transaction would be taxed. This is similar to fiat currency.

Finland
In Finland, the Finnish Central Board of Taxes officially classified bitcoin as a “financial service” and granted it VAT-exempt status. The government stated that since commission fees charged on bitcoin purchases are in effect banking services, they fall under the existing European Union VAT rules and are therefore exempt from those taxes.

Compliance with the EU: It remains to be seen if there will be an EU-wide ruling, and if so, how that will affect existing rulings by individual European nations.

Ukraine
The National Bank of Ukraine (NBU) announced via its website that bitcoin and other digital currencies may not be used as means of payment in the Ukraine. The only legal currency in the country is the Ukrainian hryvnia and digital currencies are classified as merely “money substitutes.”

No Official Ban
Though the NBU has focused heavily on the risk factors of bitcoin, it has not officially banned the digital currency. In fact, no official laws have been passed at all regarding digital currency possession or usage in the Ukraine.

Regulatory Roundup October 2014

Every month, itBit scours the globe to bring you the latest in digital currency regulation and compliance news. Below, our Chief Compliance Officer, Erik Wilgenhof Plante, highlights the key regulations and legislation impacting retail and institutional digital currency investors around the world in the month of October.

UNITED STATES

The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) released a few Virtual Currency Guidance notes in response to requests for rulings on application of existing regulations to digital currencies. FinCEN clarified that digital currency exchanges cannot avoid money transmitter status. The guidance notes could likewise apply to bitcoin processors as well as exchanges.

In New York, the extended comment period for the proposed BitLicense closed on October 21, following a clarification from NYDFS superintendent Benjamin Lawsky that many individuals and companies working in the digital currency industry, including developers, miners and individuals using bitcoin, will not need to acquire a BitLicense. There will soon be an amended proposal, which will be followed by a new comment period.

JAPAN

The government of Japan recently asked members of the country’s bitcoin industry to form a self-regulatory agency to be called the Japan Authority of Digital Assets (JADA). The authority will not be regulated by any specific government office, but is supported by the Liberal Democratic Party of Japan’s IT committee; it will be headed up by bitFlyer CEO Yuzo Kano. JADA will, among other things, serve as a liaison between the digital currency industry and the government, provide aid to budding digital currency companies and audit bitcoin exchanges pursuant to its own security guidelines. The Japanese government had previously ruled that it was not necessary to regulate bitcoin sales, purchases or exchanges.

RUSSIA

The Russian government, in a bid to outlaw bitcoin, announced it will be levying fines upon those transacting in bitcoin and other digital currencies.  According to the Finance Ministry, private users could be fined up to 50,000 rubles ($1,250), public officials up to 100,000 rubles and businesses could be fined up to a maximum of one million rubles. Russia had previously stated that use of bitcoin is illegal since it is not an official currency of the country.

SERBIA

The National Bank of Serbia issued an official statement on digital currencies earlier this month, laying out the basics of bitcoin and warning that it is not a legal tender in the Republic of Serbia. The Bank pointed out that as an implication of this, bitcoin cannot be subject to sale and purchase by banks and licensed exchange dealers, nor can it be subject to protection mechanisms in place for other currencies backed by the central bank. However, the Bank stopped short of banning digital currencies, simply warning that those engaging in bitcoin transactions do so “at their own risk and responsibility.”

CANADA

The Banking, Trade and Commerce committee of the Canadian Senate met recently to discuss regulation of digital currencies. Andreas Antonopoulos, considered by many to be one of the foremost experts in bitcoin, spoke and answered questions at the session. A video of the session is available to view online. Antonopoulos emphasized that with bitcoin, there is no real need for centralized regulation or oversight, but that clarification on certain issues including tax statuses could be helpful.

EUROPE

The European Parliament this month discussed digital currencies with Britain’s Lord Jonathan Hill, the commissioner-designate for the Financial Stability, Financial Services and Capital Markets Union portfolio, in the process of questioning nominees for several European Commission posts. Lord Hill stressed the importance of balance between safety and innovation when it comes to digital currencies, particularly in the matter of protecting users. The Economic and Monetary Affairs committee submitted additional questions to Lord Hill for written responses, which were leaked to the media and also included some discussion of digital currencies.