Canadian Parliament Report Recommends a ‘Light Touch’ in Virtual-Currency Regulation

As states and national governments consider regulations for virtual currencies, a new report from a Canadian Senate committee recommends a “light touch” lest regulation stifle a promising young industry.

In considering any legislation, regulations or policies, the Canadian federal government should “create an environment that fosters innovation for digital currencies and their associated technologies,” the first of eight recommendations in the report says. “As such, the government should exercise a regulatory ‘light touch’ that minimizes actions that might stifle the development of these new technologies.”

The Standing Senate Committee on Banking, Trade and Commerce issued the report last week. Dubbed “Digital Currency: You Can’t Flip This Coin!”, the 64-page study is the product of more than a year’s work and originated with a request to the panel from Finance Minister Jim Flaherty, now deceased, who wanted to know more about the policy implications of the emerging virtual-currency market.

The committee heard from 55 witnesses who testified in Ottawa and took a trip this past February to New York City to speak with state and federal banking regulators, virtual-currency entrepreneurs, and others.

The report attempts to define what virtual currencies are, with Bitcoin being the best known among them. It also reviews the blockchain technology behind Bitcoin and notes that such a system, in which an electronic ledger tracks every Bitcoin transaction, creates many opportunities beyond Bitcoin itself. They include bringing financial services to the unbanked in the developing world and providing consumers with greater protection of their personal information.

The committee’s second recommendation is that “the federal government consider the use of blockchain technology when advantageous to deliver government services and to enhance the security of private information.”

Panelists did not recommend that all players in the complex world of virtual currencies roam entirely free. The report says digital-currency exchanges should be defined as “any business that allows customers to convert state-issued currency to digital currency and digital currencies to state-issued currency or other digital currencies.” To minimize the risks that such exchanges enable violations of Canada’s anti-money-laundering and anti-terrorist-financing laws, the federal government “should require digital-currency exchanges, with the exclusion of businesses that solely provide wallet services, to meet the same requirements as money-services businesses,” the report says.

The study also recommends that the federal government work with other countries to formulate “global guidelines for digital currencies” while respecting the “light touch” to regulation, and that the finance minister convene with stakeholders, including banks, to discuss solutions to the lack of access to banking services for virtual-currency businesses. A final recommendation says that due to the evolving nature of virtual currencies, the panel should study the attendant regulatory issues again within three years.

The report’s issuance comes shortly after New York State put the finishing touches on its pioneering BitLicense regulatory framework for virtual currencies. Other U.S. states are mulling digital-currency regulations, as are nations. Ukraine, for example, is considering its own version of a BitLicense, according to recent news reports.