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Isle of Man Introduces Regulation for Bitcoin Businesses
What is Bitcoin? Unlike conventional currency, Bitcoin and other cryptocurrencies hold no physical form as coins or notes.
Instead, they inhabit cyber space as “hashes” or unique solutions to mathematical problems, each of which holds a monetary value that can be exchanged between individuals.
Vast amounts of computing energy are dedicated to “mining” each hash code. The resulting “bitcoin”, currently worth about £300, is then traded via a network of computers that holds the “block-chain” – a publicly held database that verifies each coin and records each transaction.
Born from the idea that people should be able to trade without the need for a third-party guarantor, the system has no central authority. The result is a truly devolved currency, governed by consensus. But when it comes to debate about its future – for example, whether to increase the size of each block-chain to increase the number of transactions it can process – that consensus can be difficult to find.
Cryptocurrency on the Isle of Man
No other government on the planet has welcomed digital currencies as warmly as the Isle of Man. The tiny island off the north-west coast of England has become a world leader in bitcoin related industries. The government there will be the first to use the block-chain to store a register of the islands cryptocurrency companies. Bloomberg’s Jeremy Kahn recently spent some time on the island and tried to use bitcoin whenever he could.
Isle of Man
Financial Services Act 2015
Changes have been made to the regulatory landscape on the Isle of Man in relation to digital currency businesses. On the 26 October 2015 the Isle of Man Government passed the Designated Businesses (Registration and Oversight) Act 2015 which brought digital and crypto currency businesses under regulation.
With the launch of the act the Isle of Man Government has introduced a registration process whereby any new companies operating in this space are required to register their business with the Isle of Man Financial Supervision Commission and comply with Anti-Money Laundering and Countering Terrorist Financing legislation (AML/CFT) and the Proceeds of Crime Act 2008. The registration process opened on the 9 November 2015 for all new companies.
Isle of Man Introduces Regulation for
Digital currency businesses will have to comply with the Isle of Man’s anti-money laundering (AML) laws from 1st April 2015 and will likely fall under the remit of the Financial Services Commission.
The Isle of Man government has amended the Proceeds of Crime Act 2008 so it covers bitcoin companies, such as exchanges, operating from the island.
Amendments to the act have been approved and state the following businesses will have to adhere to AML requirements:
“[Those in] the business of issuing, transmitting, transferring, providing safe custody or storage of, administering, managing, lending, buying, selling, exchanging or otherwise trading or intermediating convertible virtual currencies, including crypto-currencies or similar concepts where the concept is accepted by persons as a means of payment for goods or services, a unit of account, a store of value or a commodity.”
These companies will have to report to the authorities if they suspect a person using their business is engaged in money laundering. They will also have to assist in identifying the person they believe is involved.
This means cryptocurrency businesses will have to adopt certain know-your-customer (KYC) practices, collecting ID information so this can be passed on to the authorities if they suspect money-laundering activity.
Amendments are also set to be made to the soon-to-be-introduced Designated Businesses (Registration and Oversight) Bill 2014, requiring the businesses mentioned above to register and be overseen by the Isle of Man Financial Services Commission (FSC).
The bill completed its passage through the island’s legislature on Tuesday. Once it receives Royal Assent, which is expected to take place in the summer, the FSC will become the supervisory authority for AML matters.
Taken together, these measures can only be positive for bitcoin businesses struggling to gain credibility and legitimacy with banks and consumers.
With other changes currently taking place in the sterling clearing systems, the prospect of bank accounts for digital currencies takes a step closer.