An ad hoc group of US state regulators - the Emerging Payments Task Force - has begun to draw up the first Bitcoin rule-book according to the head of the group, which aims to protect crypto-currency users from theft and fraud while simultaneously providing much needed guidance amidst the uncertainty and confusion whirling around the nascent industry.
Wrapped up in an enigma
To say that the situation regarding Bitcoin in the US is perplexing would be an understatement. First, the IRS’ announced its position on virtual currencies not to regulate Bitcoin as currency but as property implying that Bitcoin transactions are subject to capital gains taxes.
On the flip-side, the US Treasury Financial Crimes Enforcement Network (FinCEN) is recognizing Bitcoin and other crypto-currencies as legitimate money transmitters that can be monitored to prevent money laundering, which would make them subject to state regulators.
Furthermore, New York and California had previously considered amending laws in favor of Bitcoin as a money transmitter and not “prohibit the issuance and use of alternative currency.”
If you didn’t get all of that then you are not alone as Bitcoin-related companies across the United States have found themselves in a grey area, where they are potentially subject to state-specific regulations that could vary and may or may not even exist.
David Cotney, Massachusetts Commissioner of Banks, told Reuters at a public hearing on Friday:
"We may be looking at some type of model definitions, or model laws or regulations, and very likely recommendations to either our federal colleagues or to Congress.”
Back in February, Cotney was appointed to head the new Emerging Payments Task Force, a group of nine members of the Conference of State Bank Supervisors (CSBS). According to Cotney, the task force is hoping to finalize the rule-book within one year.
Cotney explains that the goal of the task force is to clearly lay out which type of operations and transactions must be regulated and which ones do not. "Who's in and who's out? So if we can offer that, it would be a ... big step," he said. The group will also study other new payment technologies such as NFC-based mobile phone payments.
Emerging Payments Task Force
The CSBS website explains:
“The CSBS Emerging Payments Task Force will study changes in payment systems to determine the potential impact on consumer protection, state law, and banks and non-bank entities chartered or licensed by the states. The Task Force will take a comprehensive approach to studying the changing payment systems, including virtual currencies and other innovations.”
The Task Force is comprised of 9 state regulators:
• David J. Cotney, Commissioner of Massachusetts Division of Banks.
• Jan Lynn Owen, Commissioner of California Department of Business Oversight.
• Drew J. Breakspear, Commissioner of Florida Office of Financial Regulation.
• Kevin B. Hagler, Commissioner of Georgia Department of Banking and Finance.
• Benjamin Lawsky, Superintendent of New York State Department of Financial Services.
• Greg Gonzales, Commissioner of Tennessee Department of Financial Institutions.
• Charles G. Cooper, Commissioner of Texas Department of Banking.
• G. Edward Leary, Commissioner of Utah Department of Financial Institutions.
• Scott Jarvis, Director of Washington Department of Financial Institutions.
To regulate or not to regulate
State regulators have reaffirmed that they will not block digital currency operators from entering their states but they want to ensure that these businesses are transparent and operate in accordance with the law.
To add to the mix, the Commodity Futures Trading Commission is studying whether it has jurisdiction as well after some firms have began looking into offering Bitcoin derivatives. While a member of the task force, Benjamin Lawksy from New York, stated back in January that his department was working on a “BitLicense” system to which California has also demonstrated interest.
Regardless of the myriad of possible rules that may be implemented by various agencies, clear-cut guidelines may prove to be just what the fledgling industry needs to enter the mainstream by bolstering confidence of both entrepreneurs and consumers alike in Bitcoin as a legitimate method of payment.
And although we may have to wait a year to find out what these rules are, you can get a an idea of what could be included in the rule-book, which will most likely be based on the Model State Consumer and Investor Guidance on Virtual Currency released by the CSBS last month, which you can view here.
For more information about the Task Force, go here.