Like many other countries, Canada has been wrestling with the issue of whether to regulate digital currencies and, if so, how and to what extent.
In it’s February 2014 budget, the Canadian government introduced and passed amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act of 2000, aimed at digital currencies.
But after more than a year, the amendments have yet to be published and “proclaimed” before they become law, a necessary last step.
And a public consultation paper on the new financial regulations, promised for last summer, has yet to be released, causing some angst, but mostly relief in the Bitcoin community.
“The Canadian government has taken a cautious approach to regulating digital currencies,” said digital currency regulations expert and Outlier CEO Amber Scott. “Instead of rushing in, they are looking at all the options and considering feedback from the Senate and the industry.”
While there does not seem to be an appetite for new regulation, it’s important to have a good fit with existing regulation if that’s the direction that being taken, Scott said.
Senate Committee Hearings on Digital Currencies
The Canadian government asked the Senate Committee on Banking, Trade and Commerce to investigate, hear witnesses and report back on “the use of digital currencies and the potential risks, threats and advantages of these electronic forms of exchange”.
One of the most exhaustive studies of bitcoin and other digital currencies will likely come when the committee releases its report in late May or early June.
Upcoming election, falling price of oil, terrorism on government’s mind
At the moment, the Canadian government has a lot on its plate as it goes into election campaign mode ahead of an election expected in early fall.
Also weighing on its mind is the falling price of oil, (which has made previous economic forecasts outdated), and the ongoing war against terrorism.
Behind the scenes, however, the Department of Finance has been preparing digital currencies regulations.
“The regulations are in development and the timeline for prepublication in the Canada Gazette is unknown at this time,” department official Stephanie Rubec told Bitcoin Magazine.
It has been more than one year since the regulations were announced, and the government may be in an election campaign before anything concrete is put up for consideration.
Bitcoin community testified at Senate hearings
The Senate Committee on Banking, Trade and Commerce heard from a wide range of witnesses, including digital finance experts, legal experts, academics and Bitcoin companies and advocacy groups.
Bitcoin Guru Andreas Antonopoulos was a witness, as were many of the representatives from the Bitcoin advocacy groups which included Michael Perklin and Stuart Hoegner from the Bitcoin Alliance, Jill Friedman from the Bitcoin Foundation and Guillaume Babin-Tremblay and Francis Pouliot from the Bitcoin Embassy. Other witnesses included the Bitcoin Alliance, Bitcoin Strategy Group, CAVirtex, BitAccess, and Rodger Voorhies from the Bill and Melinda Gates Foundation.
Representing the Bitcoin Foundation Canada, lawyers Jillian Friedman and Joseph Neudorfer told the senators that regulating Bitcoin was already happening with the current laws that govern fraud, money laundering and illegal purchases.
The two lawyers told the senators that existing criminal law and financial services law is sufficient to deal with fraud. And Bitcoin businesses already are subject to private contract law and consumer protection laws that deal with the sale of a good.
Francis Pouliot explained how money-laundering fears are overstated because Bitcoin is mistakenly seen as completely anonymous, when, in actuality, every transaction is recorded in a public ledger called the blockchain.
Michael Perklin of the Bitcoin Alliance summarized what other advocates were saying: “We advocate an approach that does not stifle innovation, does not discriminate against cryptocurrencies and takes careful notice of crypto’s benefits to Canadian consumers and merchants alike.”
Most witnesses made the point that the federal government has an obligation to balance any new regulations with their effect on innovation and capital flight. The government has a mandate to promote new technologies and homegrown startups, not tie them up with red tape, they said.
These Laws Currently Apply to Digital Currencies in Canada
The Bitcoin Foundation’s testimony included a list of current laws and regulations that apply to digital currencies:
- Contracts under private law: Using Bitcoin does not render parties exempt from the application of the rule of law
- Consumer protection: All of the legal obligations resulting from the sale of a good to a consumer apply to transactions with Bitcoin
- Fraud: The investing public is protected by existing criminal legislation against fraudulent Bitcoin schemes.
- Financial services law: The activities of digital currency businesses that are similar to money services businesses will soon have to play by the same rules as their fiat counterparts.
Message to Senators
One message that came through very clearly: Regulations will send promising job-creating Bitcoin businesses off to friendlier jurisdictions such as the United Kingdom, as is already happening in Australia and New York.
Canada can benefit most from encouraging digital currency innovation without tying the hands of innovators who are in new territory that doesn’t necessarily resemble past tech systems, they said.
“I highly encourage digital currency players to respond to draft regulation when it is published through the official channels,” Amber Scott said. “While there have been some cynical comments from industry players about comment periods being ‘window dressing,’ everyone that I have spoken to at the Department of Finance seems genuinely interested in getting it right and taking industry feedback seriously.”
Canada Can Be a World Leader
There was a strong argument made by witnesses that Canada is well placed with tech expertise, cheaper energy rates and a knowledge infrastructure to be the No. 1 Bitcoin country in the world.
Canada already has more ATMs and mining nodes per population than any other country. The Bitcoin Embassy’s Babin-Tremblay said that if the Canadian government provides only a “light and neutral” fiscal and regulatory framework, the economy could benefit from Bitcoin business job creation.
Read Susan’s first article in this series from Oct 19, 2014.