Page 26 - GIF

Disruptive Technologies
Being disruptive Continued from page 10
look at what the features of a regulatory framework for virtual currency should be and, through this enable the jurisdiction to be a benchmark, attracting high quality virtual currency business.
The aim is clear, to establish criteria for establishing a business in the jurisdiction, assisting those that meet them and acting as a barrier to entry for those that don’t. It will not simply be a veneer of registration or one that simply focuses on AML criteria but one that provides a comprehensive approach.
So how might this framework look? Firstly, there would be primary legislation establishing the requirement to be authorised, the scope of area to be covered and the powers and duties of the regulator.
Secondary legislation will then set out the process for licensing and the prudential and conduct of business requirements. These in turn are supported by Codes of Practice.
There is nothing in the framework that is unfamiliar to any financial entity currently
within a regulated environment. However, a key decision that needs to be made is whether existing regulatory regimes can be adapted to include this area or a new regulator should be created. In doing so the costs of establishing a new regulator need to be considered as does whether the skill sets of the existing regulator can be adapted to meet the challenges of virtual currencies. Regulatory culture has also to be factored in; regulators can nurture new areas (as Gibraltar did with gaming) or kill them. Will the regulator be dynamic or inert? Will its existing workloads, prevent it from giving this area sufficient individual attention? These are fine, value judgements, but vital ones.
Any regulatory environment costs. If it is too expensive, or requires huge internal costs for the regulated entity, then the sector will never grow. It is therefore, almost inevitable that some costs will be met, in the early stages, from the public purse. Government therefore will need to decide is the long term value of the new business worth the short term costs, when set against other spending priorities and wishes.
Regarding scope, the focus should be on
the key risk areas, therefore exchanges, wallet providers and transmitters. There also needs to be consideration of what virtual currencies should actually be within scope. Should it just be decentralised ones (e.g. Bitcoin) or also cover centralised ones which have a single administrating authority (i.e. a third party that controls the system such as Linden dollars). Should non-convertible virtual currencies also be covered?
Virtual currencies are not the only arena the international finance centres can make a valuable, constructive and significant contribution to. The development of P2P platforms, crowd funding and other areas of disintermediation also present opportunities. We sit on a tipping point in the evolution of financial services across the world. Let us make sure we are on the mammal rather than dinosaur side of it.
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