Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Siân Jones: Cryptocurrency Regulation Update – UK, Isle of Man, California, Bitlicense

Episode Date: March 30, 2015

When one is busy driving a technological and societal revolution forward, complying with complicated regulatory requirements is rarely a top priority. Yet, the reality is that at this stage the often ambigious and rapidly evolving regulatory landscape can have an outsized impact on the fate of cryptocurrency startups and on the adoption/integration into existing systems. Epicenter Bitcoin Regulatory Correspondent and founder of COINsult Siân Jones joined us for an update on the state of Bitcoin regulation in a variety of jurisdiction. Topics covered in this episode: The recent statement by the UK’s treasury on digital currencies How the Isle of Man keeps pioneering a cryptocurrency-friendly environment The stance of the FATF (Financial Action Task Force) towards Bitcoin The insanity of the looming BitLicense rules and difficult-to-predict consequences they may have Episode links: COINsult UK HM Treasury: Digital Currencies - Response to the Call for Information Isle of Man Introduces Regulation for Bitcoin Businesses California Bill Proposes License Requirement for Bitcoin Businesses Bitlicense Comment Period Closes This episode is hosted by Brian Fabian Crain and Sébastien Couture. Show notes and listening options: epicenter.tv/072

This episode of Epicenter Bitcoin is brought to you by Shapeshift.I.O. With no account of sign up required, it's the easiest way to buy and sell light coin, doche coin, dark coin, and other leading cryptocurrencies. Go to shapeshift.io to instantly convert all coins and to discover the future of cryptocurrency exchanges. Hello, welcome to Epicenter Bitcoin. The show it talks about the technologies, projects, and startups driving decentralization and the global cryptocurrency revolution. My name is Siba Sankwitu. and my name is Brian Kravainkrain.

We're here today with one of our sort of most frequent guests or probably our most frequent guest or, well, guest host. You could say, Sean Jones, she's covered for us regulation many, many times. And so thanks so much for joining us today. It's lovely to be with you guys both again. It's only been, what, two or three weeks since we all met up in Berlin. And now here I am back on the show. It's wonderful.

Yeah, absolutely. So for those who don't know, for those who haven't listened to the show for a long time, we've done quite a few episodes on Bitcoin Regulation. And actually, when we kind of got started a year ago, we did quite a few. I think it was a top that kept coming up a lot. And, Sean, you were often so generous to join us because I think you understand this, the Bitcoin Regulation is better than, well, almost anyone. And you also was generous to record some great interviews on Bitcoin Regulation River with a lot of people at Bitcoin conferences.

But somehow in the last few months, last three, four months, we haven't done a lot of that. So I think it will be a good chance today to kind of dive back in and see what has been going on. Probably. It's just that regulation is such a boring subject for people in the exciting field of Bitcoin and digital currency. So, of course, you know. But you're right. There's been an awful lot going on, and I think there's a lot to catch up on. Yeah, I mean, I and Sebastian were talking about this a little bit before.

It's a question of who cares about Bitcoin regulation and why, right? Well, certainly like me, but... Well, right, I mean, there's obviously people are just sort of, you know, the more kind of a futuristic type of person who thinks, you know, see cryptocurrencies and things. It's like, oh, this is amazing. It's going to change the world so much. There's going to be smart robots, like move around cars and all kinds of things like that.

Then you might say our regulation. That is extremely boring, right? And then I think there's also the people who are more kind of libertarian leaning who favor decentralization, sort of complete decentralization, you know, going offshore, trying to build things that can't be regulated. And then to those, also the regulation questions aren't so interesting. And then I think there's the sort of third group that's more interested in making Bitcoin happen and sort of integrated into existing system, getting people that actually use it,

like today and next year, in the next few years, and then regulation is very, very important. And then especially also anyone who's trying to start a Bitcoin startup. super important topic. So, yeah, it's interesting. I think there are these different camps, and for some, this is a really, really important, interesting topic. And for some, it's just something that's like, why are we talking about this? Well, I mean, that's what you say is very true.

I think, though, the two extremes in a way do come together. And they come together because I guess everybody's interested in seeing why. adoption, for this wonderful experiment to work, you need lots of people to use it. And in the real world, if one's pragmatic, you cannot escape that people, the people are going to use it, live in places, they occupy places, their lives function in places, and places have, generally speaking, laws and governments and so on. And so whatever your ideological standpoint, whatever your political standpoint, you still come back to the reality that you've got to recognize that regulation in one

form or another exists, especially around financial services of any sort, generally. And so it's inescapable. And so addressing it and getting it addressed, getting regular. regulation addressed, if I use the word properly, well, suitably for the industry, suitably for users, if it's not over-regulated, if it works, and it helps encourage wider adoption, then it's, I suppose you could say it's a necessary evil if you want to look at it from that point of view, but it's there. We're not going to, we can't escape it if we want this thing to be widely accepted. I do agree that it is a reminder.

that we live in places, for one thing. No, no, but what I mean is, so, no, I'm joking at first, but what, when I hear about Bitcoin regulation, I mean, my initial reaction is, really? Now? Now is the time to be regulating this. And when reading, so we'll be talking about this digital currency's response to the call for information issued by Her Majesty of the Queen's

Treasury during the show. That sounds so fun. one thing that kind of sends out is we're trying to protect consumers right which consumers exactly are you trying to protect I mean on the one hand the regulatory bodies are saying this is a nascent technology that no one's using it and also there's a high probability that this will never gain mass adoption and on the other hand are saying we need to protect consumers so there's like sort of a I don't know it's not compatible in my opinion but anyway I'm not sure that that it's incompatible, but you make a very good point. And I suppose the consumers are the citizens,

the depositors, the users of these crypto funds, and so forth. And I don't know whether it's a good thing or a bad thing, but we've certainly, particularly in the West, become accustomed to having our governments and others make sure that we're not ripped off and that businesses are run where they take our money, that those businesses are run

prudently, efficiently, not wildly, speculatively, that the people who look after our funds are competent, that they're not thieves. And of course, in the Bitcoin world, we've seen all of that. We've seen examples of incompetence. We've seen examples

of theft, fraud, and we've seen all of those things. I think only in the last week or two, we've had another major incident where fools were parted from their money because the people they gave their money to just walked off with it, a few million. And, you know, this will continue to happen and we're used to having other people look after it for us. Take that responsibility. Do the due diligence? I mean, the thing is I don't consider myself to be a libertarian. But on this point here, it seems, first of all, we are seeing these issues being addressed in the Bitcoin space. You know, I mean, for example, you know, let's say Baltimore that we've been talking with, you know, they do like, you know, Bitcoin exchanges on the blockchain, multi-six starts being used.

Do all those things that are happening in the Bitcoin space addresses. Of course, they're not perfect. people are still going to get ripped off. And of course, some people not use it, et cetera. But, you know, they are being addressed in some ways. And I think in the future, it will be standard for Bitcoin exchanges to be built in a way that they can't steal people's money. And then at the same time, regulators and governments are trying to do things to, I guess, accomplish the same thing. So people can lose their money.

But personally, I just don't think the way government is. tend to approach this is particularly effective, right? So, I mean, even if we assume people will follow it and it has a positive effect, it also has hugely negative effects on innovation, on the ability to just get things done, try out new products, etc. So, I mean, I think on the balance, my view, is mostly a negative effect in general. I think the first wave of regulatory reaction probably only look through the lens of the existing financial services world and how that is regulated and try to apply the same kinds of rules and principles.

I suppose a good example of that might be New York with its bit license proposals and I think we're going to talk about that a little bit later. later on. But the approach there is very much one of here's the existing sort of framework and we're just going to find a way of making Bitcoin businesses fit that existing framework. But we're also seeing governments who are saying, no, this stuff is different. It presents a different set of challenges. Some of the underlying public policy issues of the like not ripping off investors or depositors or consumers. Sometimes they're the same because, again, it's a public policy issue to avoid money laundering and terrorist financing and those kind of issues.

Those basic objectives are still the same objectives, but this stuff works differently and maybe we need to look at it differently and figure out how we deal with the challenges. and maybe later on we'll talk about one of the money laundering bodies is sort of reaching out to try and figure out how to do just that. Also, we're seeing differences in different parts of the world. So in Europe, there's a much more consultative approach generally, certainly within the European Union and its institutions, which I know a lot about. I'm speaking to today from Brussels. and the approach here is one of finding out how this stuff works,

how we can still protect citizens, but at the same time harness the benefits that this technology brings and perhaps some things which we haven't even thought about that it might be able to bring some benefits to society. So we've actually got now governments, almost on our side. And there's some demonstrations of that, some illustrations of that. For example, what's happened in the UK last week with some government announcements. Yeah, but I find that the very fact that you have bodies like the European Union or, you know,

the UK, her majesty's queen's treasury, issuing these statements saying that we're going to regulate it, we're looking into regulating it sends some sort of a signal to the people that is not necessarily positive. So to us, we may look at it saying, we'll actually read it because we're involved in the space and we're interested in this stuff. So we read the thing and we're able to have opinions and stuff about it. But the media will look at it from a completely different standpoint. And what the people will interpret it as is they're regulating this. And so therefore, it must be bad. Or therefore, there must be risks. And we need to be really. careful. Like, so I mean, just talking to people, right? Just talking to people still about Bitcoin now,

I still get like the same sort of, um, a prioris as I would last year, which is drugs, uh, money, laundry, etc. And people, you know, we need to regulate this. But I'm not sure that any of that is, is, is, is necessarily bad. I mean, the average person, um, um, who isn't one of the Bitcoin connoissenti, if that's the right word, is not part of the Bitcoin world. It's just an ordinary person, but he's heard about this stuff, or she's read about it. Things it might be interesting.

Of course, everybody wants to make as much money as possible by saving costs or by seeing appreciation in value or whatever or whatever with little or no risk, preferably no risk at all. And the average person, certainly in the West, looks to his or her government or authority to protect them from some of those risks. You know, the average person is not going to do

their own due diligence about what this stuff called Bitcoin is and how it works and how they might be ripped off. They'll look to central authority to do that work for them. And so if it's regulated, it actually does send a signal that it's something that they can have confidence in. I mean, we all know that banks are regulated, and that we all get ripped off by banks, of course. I'm not sure that's actually, that's really true.

I mean, you have a generation now that is so used to the Internet and getting in the information themselves and that I don't think necessarily will always look to the state or to some sort of regulatory body for protection and assuming that we're protected because of this. Especially with such a new technology like Bitcoin, I think people that get into the ecosystem that start getting interested in it

will do their own homework and know very well that they're not going to be protected by maybe my assumptions are wrong. But this is the point, Sebastian. They want to be protected. They don't want to have the worry. I take your point and I agree with you, it is a changing world and people are doing things differently than they did in the past and they are taking a little bit more responsibility for some aspects of their lives. But broadly speaking, we all want to spend as much time as we can being entertained or communicating through our social networks.

We don't want to be spending an awful lot of time worrying about whether our, and I'll talk about it, our money being safe, but I'll use our value, whatever you want, to, however you want to see that. We just don't want to worry about it. We want to be able to put it in the bank, or indeed not even have to put it in the bank, have our employer put it in the bank for us. And we draw upon it when we need it, and we want to think about it as little as possible. We don't want to live. lose value. We don't want to lose any of it. We don't want any of it stolen, and we don't really want to have to think about it. Now, I think there's evidence to suggest that that's still the case. In the UK, where I come from, laws were passed to make it easier for people to switch their bank accounts. What they found was that over time, people tended rarely to switch their bank accounts and it suggested that there wasn't therefore an awful lot of competition, that people were

somehow locked into their banking arrangements. And so they passed laws to effectively mandate the transfer of, or ease of transfer, I should say, of bank accounts. You can switch your bank account far more easily today, a bit like you can switch your mobile phone provider, you can switch a bank account. And that's been around for a little while now. And actually, it's hardly made any difference whatsoever. People are still not switching their bank accounts. And that kind of suggests a certain apathy. I don't know if that's the right word, but it suggests that. And that folks just don't want to be bothered. Yeah, I mean, that's obviously true. And I mean, I think anybody who believes that magically because now we've got cryptocurrency,

people are changing and they are taking on more responsibility and they don't want other people to take care of things for them, et cetera. That's, you know, that's extremely naive. And it's, you know, it's pretty clear people, you know, people don't want to worry about security. People don't want to worry about the money getting stolen. People want someone else to take care of it for them. Of course, there is that minority that uses PGP and, you know,

does their offline backups in the Bitcoin space and all that sort of stuff. But this is never going to be the mass and the average person. And the average person obviously is going to want that security. I mean, the thing is just I have some reservations, whether it's government regulations and documents that's going to get us that. But I, of course, do agree with you that people want that. Yeah. And you're absolutely right.

I mean, we trusted governments to look after our monetary system. And if you happen to live in Cyprus, I lived there for four or five years and left just a year before all the banks crashed. And effectively, there was, I think, about a 40, effectively, a 40% tax placed. levied on people's deposits over 100,000 euros because the banks had collapsed. And everybody thought that they were protected by their government and by the European Central Bank and by everybody else, somebody else, there were so many people involved, so many regulators you can't believe, surely you couldn't have a systemic failure of the banks. and yet it happened.

So you're right, Brian. No, and I wasn't suggesting that people aren't, people who care about being protected. Simply, I think that, you know, the world is very different from before the world is changing. And I don't necessarily agree. The world is changing, but people are not changing, or much less so.

Oh, can I quote you on that? Sure. Well, you're right, the world is changing. You're right, it is changing. I'm speaking to you from somebody's apartment in Brussels that I'm staying in through Airbnb, and the person whose apartment it is has entrusted somebody she doesn't know to take over her home for a few days. Actually, you're quite right. It's a different world now.

People wouldn't have done that. They do it because of new trust mechanisms, reputation mechanisms, and so on and so forth. So, you know, you're right. The world is changed. Which in this case are not regulated, by the way. It's like, absolutely. Absolutely. Good point. However, unfortunately, when money is involved, people will steal.

I don't think that's quite true, right? I mean, Airbnb has regulatory issues and issues of governments all over the place all the time. I mean, I think they, you know, they have a lot of. of, they run in a lot of conflicts there as well. And yes, obviously, but obviously, Sean, you're right. I mean, when it comes to financial transactions and financial services, regulations are much more onerous and complicated than when it comes to housing and renting out rooms to other people. Yeah, but it's true. And in a way, you could say that Airbnb is a kind of regulator. you know, they are under centralized authority that manage the reputations.

That's true. And but yeah, but to your point, Brian, her majesty of this queen is not issuing this, the papers on how we should regulate the, you know, the blossoming sharing economy. No. Well, but no, I mean, I think Uber and Airbnb and those companies, I mean, they have a lot of, they have, they tackle with issues like there's all the time. Sure. Yes, I tell you something even more amusing than that. Here in Brussels, the local city banned Uber. And the European Competition Commissioner got really rather angry because, one, she used to use it.

And two, it was saving the European Parliament and Commission an awful lot of money in costs. And so, interestingly enough, you had the legislators up in arms against the people who were over-regulating and wanted to see it all freed up. Now, there's an interesting juxtaposition, isn't there? Absolutely. So there was lots more to talk about. In fact, we're going to get into this response to the call for information issued by Her Majesty of the Queen's Treasury. Whenever I read this, I couldn't help but think of, like, hear Monty Python voices saying, Her Majesty the Queen has issued.

I have to slightly correct you because every time you said it, I've smiled larger and larger. It's Her Majesty's Treasury, which is an old title, because, you know, but the Queen bit doesn't actually appear in there. I don't actually think she has anything. And everybody says HMRC. Oh, no, that's something else. That's Her Majesty's revenue and customs. They're the tax collectors and so forth. And Her Majesty's Treasury is what most countries call the finance ministry. Okay. Well, apologies to Her Majesty. So we'll get back to that in just a second. Before we do that, we'd like to talk about ShapeShift. Shape, this is a fast and easy way to buy and sell alt coins. They support up to 25 different alt coins right now. most of which remain unregulated. And so it's a really fast and easy way to trade, say you want to buy some like coin,

or you want to send some Bitcoin to someone, but you perhaps have some dogecoin or any other of the currencies that they support. So let's demo. Show the screen here. And so as you can see, so you go to shabshift.io, and you can use their currency conversion tool,

which is sort of like Google Translate for cryptocurrencies. You choose the currency you want to convert. So let's say we want to send some. So here are all the currencies they support. You know, they got BitShares. They've got Ripple. Recently, they added this clams coin. If anybody knows what that is, I'd love to know what clams is.

And those coin. And so we want to send some Bitcoins. We just put a Bitcoin address. Enter the amount. Hit start. And then you get this QR code. You send, in this case, light coin to that address and the light coins would get sent to that person's bitcoin address or yours or

anybody else's in that for that matter so it takes about 30 seconds to do it's very fast and they only take a small fee so it's already included in the price when you're setting the when you're sending your your currency so what's great about shape shift is that they don't require any personal information you don't have to give them your email address even and so you're in information stays perfectly safe and private. So give it a try, and we'd like to thank ShapeShift for those support of WebSenter Bitcoin. All right, so back on Her Majesty's Treasury, response to call for information on digital currencies. So this is a, you brought this to our attention earlier this week or I think it was late last week.

When was it? It came out, it came out on Wednesday last week, so just over a week ago. And can you just broadly describe the context in which this document was released and what it means? Absolutely. Firstly, this paper was published as part of the budget announcements. The UK government sets an annual budget, although part way through the year it kind of has a sort of review. and the government announcement, our Chancellor, the Exchequer, our finance minister announces a whole set of measures for the ensuing year and beyond.

Perhaps I should just make it clear that although this budget announcement comes out at this particular time every year, in the UK there's an election in May, so in about five weeks' time or there are there? about and it's going to be, it's one of the closest run elections for a very long time. So we have no idea whether this party and this chancellor are still going to be in power in a few weeks' time. And indeed, this budget will not be discussed in Parliament until after the elections. So it's essentially, it's a budget proposal for the ensuing period. By way of history, in the summer last year, the very self-same Chancellor George Osborne stood up at a major innovation event in Canary Wharf in London,

and announced that he was basically supporting fintech industries and wanted to see the UK prosper. and mentioned specifically amongst one or two other areas, mentioned specifically digital currencies. He announced that there was going to be some work done through the rest of the year, investigating how it could best be supported and if and to what extent virtual currencies would need regulating. And that work continued through last year, the Treasury,

which is effectively his ministry, put out a call for information, which was responded to, I think, by around 120 organizations and businesses, so key industry players submitted there. And not just from the UK, but from all around the world, right?

Indeed. I mean, submissions were made from businesses that were outside the UK, but obviously most of them had aspirations to do business in the UK. which is why they bothered to do it. You had organisations like the UK Digital Currency Association make, a very substantive submission,

and other bodies like the British Bankers Association, you know, the evil bankers put in a submission. And Treasury chewed on all of this and gave it some thought. and the paper that it published last week was the outcome. And essentially it highlighted a number of key measures. The first was the regulatory one. The government said that it felt that virtual currency exchanges, businesses at the interface with fiat currencies should be subject to the anti-money laundering

regulation and framework that exists for pretty much all other businesses, and that they would start a more detailed consultation on how that should be done. But essentially, it's government policy to bring Bitcoin exchanges into the anti-money, money laundering regime. Secondly, and perhaps a little surprisingly, the government announced £10 million of public money to go into digital currency research. So here was a government actually throwing public money at a time of fairly stringent austerity.

Throwing might be perhaps the wrong expression, but certainly allocating money to research into digital currencies. And one of the entities that it was going to do this through is a sort of amalgam of some of the main universities like Oxford and Cambridge and University College, London, and Edinburgh and others. But also making that, basically trying to stimulate research in how the underlying technologies could be better used.

and be used to advantage. And this was, you know, seen as a broadly supportive measure, something that, you know, I think it's probably the first government to say we're actually giving money to an industry involved in virtual currencies. It's brilliant news. And so that was the sort of second. And the final sort of key point that came out was support for a self-regulatory standards-based regime for the industry as a whole.

So instead of saying there should be government regulation of the digital currency businesses, it should be something that the businesses take care of themselves through standards. And it announced an initiative with the British Standards Institution, which is one of the sort of global leaders in standards organizations to help come up with the detail of that. And that's actually work that's being done in conjunction with the UK Digital Currency Association to come up with standards that can be adopted by an industry

and so avoid government intervention. So broadly positive stuff, I think. So, I mean, I think the interesting thing here is if we contrast that to some other countries in Europe and maybe around the world. So, like, let's say, for example, in Germany, there has been no statement of that sort in any way, right? I mean, I think the government tends to be not supportive of cryptocurrencies, right? And when it comes to regulation, they're like, oh, it needs to be, it needs to be put in. these existing categories, you need to comply with that. I mean, there's even the question of the VAT.

We won't have time to go into that, but that's still sort of looming. And I think the German government, as far as I understand, has often been sort of a stance that, yes, there should be VAT applied on that, totally irrespective and totally ignoring the repercussions that would have for cryptocurrency startups, for the innovation and all the positive things that can come here. And I guess a nice thing here about the UK is that they do take a different stance and show much more openness and more positive approach. I think the thing that struck me most was that there was a more or less unified government

policy approach. They talk about joined up government in the UK. So this was government policy rather than just one regulator giving a perspective on this stuff that's digital currencies. And this is quite interesting because I don't think I have seen anywhere in the world to date a government that had a total, you know, a holistic policy that it could apply. This is the first instance of a government having any policy. Apart from possibly Russia, which seems to have a policy that's anti-digital currencies, all the statements I've seen have tended to come from individual regulatory bodies. This is the first instance I've encountered of a government having a total policy,

not just a tax policy, not just a tax policy, not just a, banking or payment systems regulation policy. And so they have taken the whole approach rather than and looked at all the consequences and intended and otherwise. So, Sean, what are the consequences going to be of that? Is it going to be easier for Bitcoin startups in the UK to get bank accounts or to do business there? Definitely, I think it's going to be, it's a signal to say that the UK is a country that is

going to be welcoming for Bitcoin businesses. We still are struggling in the UK with the banking industry, but there are developments that are going to be changing that, I think, and taken together. I think we'll see this sort of government endorsements, this regulation for money laundering, all sort of play reasonably well in the years of bankers. but more importantly, the problem that Bitcoin businesses are having in the UK is not, strictly speaking, a problem of access to banking. It's more particularly a problem of access to the clearing system, in other words, getting money into and out of their exchanges, for example. And that is controlled by essentially just the big four banks, the mega banks, the big four control, all of the clearing system.

And so long as they are negative on virtual currencies, for a variety of reasons that probably we don't have time for today, because of that, it means that even the challenger banks who have to go through the big banks, the Big Four, to access the clearing system, they have not been able to make progress in opening accounts or maintaining accounts for Bitcoin businesses. However, there is a new regulatory regime,

a competition regime starting next month in April. In fact, the new regulator for that is the payment systems regulator. And she will open up access. She's already made that clear. That's part of her remit. Do you have any insight into why those four banks are so hostile against providing access to the clearing system for Bitcoin companies. I think it's part of a policy of derisking,

which banks have been doing to reduce their exposure to regulatory risk. But that is complete nonsense, no. I mean, there's obviously no risk in letting some people deposit some Bitcoin on a big, some a thousand, a few thousand pounds, or a million pounds on Bitcoin exchange. It's the regulatory risk. So the way that anti-money laundering regulation works pretty much throughout the world is that intermediaries, so banks, for example, are required to effectively police the system

and report anything that is suspicious to the authorities. you know, some people in East Germany might find that fairly reminiscent of the way things used to be before 89 or whenever it was. But essentially the banks are the government's eyes and ears

on money laundering. And if they fail to take that responsibility seriously, they get fined. And so if they're found to have handled laundered money or money that's destined for terrorists, then they can be fined and they can be fined heavily. And so a whole class of business, not just Bitcoin businesses, but for example remittance businesses and others who, if you like, mean that the bank are

one step removed from the end customer. The banks have greater exposure. It was a big scandal over the last two or three years as the accounts, certainly in the UK, of remittance businesses, were closed. And there's the example of remittances to Somalia where Somalis who left the country and were working abroad in UK and other parts of Europe, in America and so forth,

would earn money to send home because the economy was shot to pieces and that was the only way to feed their families. I think something close on half the economy was dependent on remittances back to the country. But there was only one banking link, as it happens, it was Barclays Bank in the UK, I believe, who had a presence in Somalia. And so all of the remittance businesses had to channel their funds through Barclays to get it back into Somalia to feed their families. But because of the policy of derisking, because it was seen as a riskier class of business to handle

because they didn't know who'd actually handed this money over and perhaps some of it was destined for terrorists and so on and so forth, which would have exposed the banks to the risk of fines and so forth. Because of all of that, the banks closed accounts. They closed accounts of these remittance companies and they basically cut off the bank. The bank's system and the remittances that were going back to feed people. I mean, it's obviously a bigger risk to, you know, pay a fine than if some people can't feed your families in Africa. That's a pretty clear choice as a bank, which way are you going to go?

Well, you know, they've got shareholders, haven't they? Yeah. You also wanted to talk briefly about the Isle of Man. I mean, it's an area that you've been deeply involved in knowing that you spend a lot of time there and it has, I think it's one of those places that nobody's ever heard of before there started being these news and rumors and developments, including a Bitcoin conference over there that this is now some sort of Bitcoin Haven and Bitcoin friendly place where everybody can go and do whatever they want.

At least that's a little bit the way was touted. So can you maybe share? be able to an update what's going on there and what the situation is looking like? Absolutely. Firstly, you're quite right. It isn't a place that a lot of people have heard of, but for those who haven't, it's an island of about 80 plus thousand people that sits halfway in the Irish Sea between mainland UK, mainland Britain, I should say,

so that's England, Scotland, and Wales, and the island of Ireland. and it's an entirely independent state. So it has its own legislature. In fact, it has the oldest parliament on the planet that's still running. And it sets its own laws. It has its own regulatory regime. And it's been known in the past as an offshore financial centre. And it is very proud of its reputation as one of the leaders,

leading offshore centers because it diversified from sort of pure offshore financial business into other industries. Space, biopharmaceuticals, biomedicine. I don't know if many people realize that if they fly on an airbus. The undercarriage was almost certainly built on the Isle of Man, if I understand correctly, They've got a number of niches. One of the niches was e-gaming, and that's proved very successful for the island man. It accounts, I believe, for about 4% of the island's GDP, and they wanted to repeat that success with cryptocurrencies. On the contrary, I wouldn't say they were touting it as something where anybody could come and do anything.

On the contrary, they were saying they were very well. of reputable businesses that wanted to establish themselves, as they did with e-gaming companies, that wanted to establish themselves, that they would be welcoming and friendly and offer a very friendly regulatory environment. And they brought that to fruition in just the last week. On the 17th of March, so just over a week after we're recording this, they passed some amendments to the proceeds of Crime Act, which is, if you like, their money laundering legislation

that now brings a wide range of digital currency businesses within the scope of that legislation. So things like if you are suspicious of one of your clients' customers laundering money or channeling terrorist funds, that you have to file a suspicious activity report, just as if you were a lawyer or an accountant or a casino or a real estate agent or someone who sold high-value goods. And they've also, just two days ago,

passed a new piece of legislation called the Designated Businesses Bill. It's passed through all the stages in the Parliament, and it's now going for sort of seal of approval. and here we do come back to Her Majesty because it does actually need Royal Ascent and that should happen in a few months' time

and that piece of legislation makes the Financial Services Commission on the island the regulator for anti-money laundering so Bitcoin businesses that handle other people's money for example will need to register with the FSC

and they will be subject to the FSC's oversight. So this will be the first real example of Bitcoin businesses being properly regulated by some sort of entity. Now, do you have any idea of what additional overhead and costs might be associated to then opening a Bitcoin exchange in the Isle of Man or any sort of Bitcoin business? Actually, the Isle of Man will probably be an awful lot less expensive. expensive by a massive amount from somewhere like New York. So, I mean, the registration fee that I believe has been laid down is something like 500 pounds

and probably a similar amount, I would imagine, per annum. I think New York, your application starts at $5,000, but all the other paraphernalia that you have to have in place is going to push you into tens or even hundreds of thousands. This isn't a kind of industry or technology-specific regulation. This isn't a regulation that's about all manner of standards and methods of operation. This is rather just about money laundering. And that's what you might describe as a light-touch regulatory regime. It'll force the bad actors to think twice about coming to the Isle of Man whilst allowing genuine, well-run businesses to thrive and prosper. So I would say the Island Man is a wonderful destination, and you can go there now, and you can set up

business now very quickly and simply. I've done this for a number of clients recently, and it really is good jurisdiction to get things off the ground if you if you um if if you if you've got a good reputation very easy very welcoming um very accommodating you're going to be able to sit down with the regulator to a certain degree and discuss things um if you have questions before you submit your application those sorts of that's a sort of very can-do attitude very helpful attitude today's magic word is Treasury, T-R-E-A-S-U-R-Y. Go to let's-talk-Bidcoin.com to sign in, enter the magic word, and claim you're a part of the listener reward. So, well, before we wrap up, you know, we wanted to talk about other things that happen since we have you on.

Since you are quite knowledgeable about these topics, talk about what's happening in the U.S. But before that, like, I just want to get an idea coming back to this Her Majesty's Treasury document we were talking about. So where do we go from here? What are the next steps that need to be taken in order for actual regulation to come to be passed in the UK? And how long can we see that occurring? It's not going to be an overnight thing. I think the expectation is perhaps that suddenly things will be different. This announcement, this budget announcement on the paper that you refer to is an indication of policy.

This is government policy, but it has to be translated into something real. So there'll be a consultation phase that takes place after the elections in May. I suspect that will take a few months. They'll then draft some legislation. It very much depends in what form that legislation takes. My guess is that that will be done in a relatively simple, and straightforward way. So I would say we'll see something actually,

something for real in the sort of six to 12 months timeframe. The business about funding, the 10 million for research, that money has already been allocated. It's in the budget. The money has been put aside for this next financial year, starting in April. So that things could have. happen there even sooner.

And do we have any ideas to what this research could be? Well, it's whatever the research bodies will sort of apply for some of this money to carry out some research project. I suspect it'll be mainly focused on the things on sort of future potential applications for blockchain. sort of bleeding edge stuff to look at the possibilities. And I suppose research can take six months, 12 months, projects before you get some things drop out.

But if you start to put money into it, things start to happen. So I think it will be good. Do you think that this paper and the conclusions that draws perhaps sends a signal to other, European jurisdictions or even the European Union as to what type of approach those other bodies should also be what other approaches they should take to Bitcoin Red Relation. I should be very surprised if other leading jurisdictions in Europe won't start to focus on it. They won't want to lose the potential venture capital money that would otherwise

certainly be attracted to the UK by this kind of environment. The environment has been signalled now. You know, they want startups to come to Paris or perhaps even Lille or Berlin or other European centers. So absolutely, I think others will be. So let's just very briefly come to the news. You mentioned the Financial Action Task Force. What is it and what's going on there with Garza Bitcoin? The Financial Action Task Force is an international body

that sets the recommendations for anti-money laundering. And the countries around the world sort of then subscribe to those rules and measured one against the other by their adoption of those standards. Quite interestingly, it's holding a public, sector consultation here in Brussels this week. It's on today and tomorrow. You're going to be attending now? I will be there tomorrow for the virtual currency session. And that's really why it's worthy of mention here today because they're giving a lot of time to looking and consulting with

the industry about the specific anti-money laundering challenges. They recognize that the old way of doing things that they'd set their standards around may not be wholly appropriate to digital currencies and so need to look at what are the underlying aims and how can they of anti-money laundering and how can they achieve those aims with this new stuff that's crypto? So they will issue recommendations that their national governments may implement in some ways. They came out with a paper last summer, which was sort of a reasonably appropriate, well-written, demonstrated good understanding of digital currencies, but had no idea how they were going

to sort of apply anti-money laundering to it. And that thinking is obviously being going on, and they're now at a consultation stage, and I suspect in the summer they'll come out with some new recommendations. how that could best be done with digital currencies. So I think that's good. And there's one other thing just briefly worth mentioning. One of the other topics they're discussing at this meeting is this business of derisking that we talked about earlier on. They're actually on our side.

They don't like the fact that banks have used anti-money laundering as an excuse for derisking. They feel that anti-money laundering shouldn't be a blanking. kit reason for closing or not opening accounts for Bitcoin businesses or remittance businesses and so on and so forth. They feel that that is not in the spirit of the thing, that the spirit of the thing is about assessing risk and taking appropriate action, what they call the risk-based approach rather in the prescriptive box-ticking exercise. And they don't like the fact that banks seem to be using it as a risk-based approach.

a sort of broad brush wholesale excuse. And they're debating that very subject also tomorrow. So that's really an interesting thing. They're actually on our side. They want the banks to open up. If for no other reason, by the way, than that they fear that if banks, you know, keep their doors closed to all these innovations, that the money will still flow, but in unauthorized ways, and therefore the aims of anti-money laundering will be lost. It will be an unintended consequence. But I think it's an interesting development. Excellent. And then I guess the sort of looming thing that has been most discussed,

most prominent in the Bitcoin space with regards to regulation is the bid license proposal. Now, the last draft came out for a comment period on March 4th, and it said it was a 30-day period. I know it was February 4th, and that 30-day period where one could still submit comments, ended on March 4th. And we talked with you about this briefly and your point of view was sort of that there probably

wouldn't be a lot more changes and we might actually see this very soon sort of passed as law what has been proposed and what is sort of in the last version. So what do you expect

do you expect that to happen in the next month or? I expect to happen quite soon. So we had one draft that was the very controversial draft. It had an extended comment period

and many of the comments were acted on and were reflected in the revised version that you've just talked about. We're now at the end of the much shorter comment period for that.

I'm not anticipating any significant changes, maybe none at all. And the way that it works in New York State is that this set of regulation doesn't need to go through any legislative process. So it's been issued by the New York State Department of Financial Services, and when it's ready, it'll say this is now the law and that's the law. And that I expect will be relatively soon. I mean, I think, you know, you mentioned that some of the comments have been addressed, but, you know, I remember reading through that and I was like, this is insane.

And it may be true that, like, you know, in some minor ways this was addressed, but I still think it is a completely crazy what these guys have come up with. And I remember one of the things they mentioned in there, which I find is perhaps the most absurd, is that there is this provision in there that any company that's licensed on the bill license has to do KYC on both parties to each transaction they're involved in. So, I mean, in my view, at least if one interprets that, you know, let's say Coinbase gets regulated. And then if I have a Coinbase account, well, wouldn't that mean if I send money to someone

else, Coinbase needs to know who that other person is, including identical address, et cetera, et cetera. And actually, if you take it further, I mean, logically, it should also include incoming transactions, which, of course, is completely incompatible with Bitcoin. So I'm really curious how this is all going to turn out. I think there are some very real challenges to meet this set of regulation. I mean, one almost even more absurd sort of approach is that the money transmission

sort of world in the existing regulated sectors have rules about having information about the payer travel with the transaction so in other words when you send euros from Berlin to

to Lille across well actually that's probably not a example because within Europe, within the EU, that's not quite true. But let's say you had to send some dollars from Berlin to New York. Information about you as the payer has to be sent with the message to the receiving bank. So if you like, information about the source of the funds travels with the transaction. And of course, that really is an impossibility with Bitcoin. So there are going to be some very real challenges in how this stuff applies.

Obviously, businesses are going to have to look very carefully at how they structure their business models in order to comply, or indeed, whether, as in many cases, I suspect, whether they want to do business in New York at all. There is an extra challenge there. Of course, the interesting interpretation of what these New York regulations apply to, make that extremely challenging, you know, because it's basically any New York user, well, it applies, right? And then as far as I know, even if there's a New York user who isn't actually located in New York, it may apply. I mean, okay, maybe it will be enough if you blocked

IP addresses, I guess. Well, no, it probably isn't enough. And that's that, I mean, you've highlighted a really interesting point. The, the, the, as drafted, the scope is about the widest we've ever seen in what's known as extraterritoriality. In other words, the way it's been drafted is that if any part of the transaction, a transaction, involves in any way somebody who is from New York or is involved in any business relating to New York. it's this use of the term involved in. And it doesn't just mean that the transaction itself might involve New York. It might have nothing to do with New York,

but the person who has sent it or is receiving it has something to do with New York, even though they aren't a New York resident, brings it within the scope of this regulation. And essentially, if anybody contravenes it, if you should have been licensed with a bit licensed, and you failed to do so, and it subsequently comes out. You could be arrested and jailed in New York for having breached a New York law, even though you have nothing to do with New York, the payer has nothing to do,

sorry, isn't based in New York, doesn't live in New York, and neither does the recipient, but simply because of some tenuous involvement. Yeah, I mean, that's just completely crazy. I mean, I think that's a really sort of imperialism or an imperialism, or an imperialistic attitude to law at its worst. And, I mean, I think it would be interesting to see what happens. Obviously, it makes no sense. And obviously, people will be violating.

I mean, the vast majority of Bitcoin businesses will be in violation of this law or the response to shape shift. Quite obviously, it does not completely clear that they're going to be violating the law. I mean, pretty much any business is going to be violating this law. Well, there are other challenges as well, ones that have cost implications, because there's, as in most regulated financial sector, there's an element of due diligence that has to be carried out on one's clients. So you have to know who your client is

and understand their business and so on and so forth. And that comes in different sort of levels of depth, if you like, how far you have to dig, if you like. And that it's most extreme. It's known as enhanced due diligence, and you really do have to do an awful lot of work to prove an awful lot of stuff. The New York Regulation say that if any person involved in the transaction

is not a US citizen, then you have to do enhanced due diligence in any event. So you could be a French business, Bitcoin business, handling a transaction for someone from the United Kingdom on one end and Germany at the other end, but because you also do some business in New York, you're licensed in New York, then you have to carry out enhanced due diligence on the person in the UK and the person in Germany,

even though that transaction has nothing whatsoever to do with the US. And there are huge costs. And it makes it hard to do business, and so people will go elsewhere to businesses that are not licensed in New York. Yeah, I mean, I think the consequences, in my view, is pretty clear, you know. So, first of all, there is a huge incentive for people to develop software that is located, operated locally, right? So let's say we use Electrum. Well, that's just open source software.

He has no control. So obviously that doesn't really apply. So there's a huge incentive to do things like that. And then the other thing is, you know, you can go off. offshore and just say it like whatever I don't care about the US laws and and I guess that may have as a consequence I presume that the founders or the management staff should perhaps avoid traveling to the US and there could be consequences like that and I think the third thing is it's going to be a really huge competitive advantage for any company that is regulated in New

York because who would want to use it? it increases massively their cost. So it would be extremely interesting, I think, how this all turns out. Absolutely. And it's quite interesting there, too, because the whole of the states isn't New York. I mean, obviously, New York is the largest financial center in the states, one of the largest financial centers in the world. But the approach is not universal in New York.

There's a slightly different approach in California. California is the world's sixth largest economy in its own. right, just as one state. It's still a global scale economy. And of course, it's home to Silicon Valley where many Bitcoin startups and venture capitalists are based. And it's just started. It's just launched a bill that's gone to a committee this week for the first stages of consideration on licensing digital currency businesses or exchanges at any rate and bringing them into line with sort of money transmission type laws. Unlike New York's 46 page, I think it is, regulations,

the California one is four pages and much more light touch. And so you'll have competition between states in the United States. But you also have competition from abroad outside of the states. You were talking earlier about Europe. And the European approach is far more consultative. I do an awful lot of work here in Brussels with the European Digital Currency and Blockchain Technology Forum, which is a public policy platform, a kind of advocacy resource to the European Parliament and the Commission and other institutions. And they are hungry for information about this stuff. I mean, we're consulting, giving advice, briefing members of European Parliament, and

and others addressing meetings virtually every month, one form or another, and we're organizing a big expo, which one of the MEPs are sponsored in the Parliament in the first week of November, specifically to feed this thirst for knowledge before they even start on thinking about regulation. And this is excellent news because what it means is they're going to be much more measured. And so, yes, you're absolutely right. There will be much more competition between jurisdictions. Yeah, so, well, I think we're at the end of our show. I mean, we could definitely talk about regulation much longer.

And I'm sure we will come back to this topic because it's just a reality that it's a very important topic when it comes to establishing Bitcoin businesses and getting people to use Bitcoin, integrating it and sort of making progress with this cryptocurrency revolution. working on. If I might add, Brian, so I agree with everything you were saying regarding New York and how it is become, it is, it will probably become some sort of a handicapping, um, characteristic of that state where, you know, Bitcoin businesses are not going to want to go there. And, and also, it becomes a problem for just, you know, founders of companies outside New York who may want to travel there. So, um, I, I'm very much looking forward to seeing what will happen. in terms of where startups will want to establish once this law passes. I think that's a great point you're bringing up, right?

So because right now, if you look at venture capital investment, Bitcoin space, it's extremely unbalanced in that almost all of it is, or the vast majority of it is in the United States. So maybe that's going to have a positive effect on Bitcoin in Europe, that more companies move over here. Certainly that's the hope of, say, the UK government in its policies is to make the UK very attractive and bring venture capital funding into the UK and to bring startups, encourage startups in the UK. So instead of folks flying across and starting their businesses in California, in Silicon Valley and so forth, there'll be, you know, there's their incentives for them to come to London, the big fintech. tech center in around Silicon Roundabout, for example. So, yes, there's a lot of jockeying for position

going on. I wouldn't write off New York entirely. I think the startups will probably tend to avoid New York because, hey, you know, it's huge overhead and cumbersome and they may lose, you know, competitive advantage that it could get a gain elsewhere. But certainly the big money you know, think back a few weeks ago to the New York Stock Exchange, putting in towards $75 million, was it, into Coinbase. You know, the established, the blue-chip world will definitely, I think, gravitate towards somewhere like New York, because it benefits from those standards. and actually the costs of regulation for big business, really big business, traditional business is quite small. Yeah.

So, yeah, Sean, thanks so much for joining us for a bit of a regulatory update. We hope, you know, you as listeners, enjoyed it and got something out of it, and perhaps it will give you some guidance and help when it comes to your own activities in this space. So thanks so much for listening. You can follow us on Twitter if you want. we're at Epcenter BTC and we'll be back one week from now with another episode.

So thanks and until then.