The States of Jersey, one of the Channel Islands, has recently held a consultation exercise resulting in the “Regulation of Virtual Currency Policy Document” as a pecursor to introducing proposals for regulating virtual currency in the jurisdiction.
As usual, the obvious target is fiat exchanges; the legislation that pertains to Jersey’s centralised fiat banking system is trivially extenisble to the cryptocurrency/fiat interface.
Which broadly maps out to:
The feedback to the Consultation Paper resulted in a significant proportion of the respondents in favour of Option B, namely adopting a position where the interface between fiat and virtual currency is regulated for anti-money laundering and countering the financing of terrorism (“AML/CFT”) purposes. This view was equally reflected in the consultation seminar where there was overwhelming support for initial regulation only being applied at the interface.
However, the rest of it is less well-grounded. Take the “High Value Dealer” programme that the legislators fondly imagine can be simply extended to cover cryptocurrency.
High Value Dealer Regime and Virtual Currency
- A regime already exists in Jersey that deals with those businesses who are High Value Dealers.
- These are persons who, by way of business, trade in goods when they receive, in respect of any transaction, a payment or payments in cash of at least €15,000 (or equivalent) in total, whether the transaction is executed in a single operation or in several operations which appear to be linked.
- If a person is a High Value Dealer a registration requirement is triggered which invokes supervision.
- In the context of virtual currencies, it is considered that a dealer who is willing to accept a payment or payments of €15,000 or more (or equivalent) in virtual currency should equally be covered by the High Value Dealer regime.
- Therefore, legislative amendments will be brought forward to extend the application of the High Value Dealer regime to include virtual currency.
In the absence of traceable connections from the heavily-regulated fiat world, things get a bit more “nuanced”.
The legislators are aware of the issues introduced by the inherent pseudonymity of cryptocurrency users, to wit:
There is no inherent notion of identities or individual accounts which “own” V coins. Ownership simply means knowing a private key which is able to make a signature that redeems certain outputs. No real-world name or identifying information are available.
It is infeasible to extend the regime to cover cryptocurrency without introducing a means by which cryptocurrency users can be individually identified in order to be classifiable as High Value Dealers and obliged to conform to regulatory requirements.