Regulations, Regulations, Regulations

Lucille ball looking both sidesWhat is it with the upcoming International Regulations on Cryptocurrency Businesses?

A LinkedIn contact of mine, Niel Gafter, posted the following questions about the regulations being placed on Cryptocurrency Businesses worldwide, starting with the US, Canada, and New York State.

  • What regulatory purpose is served by requiring a license in each jurisdiction in the world (such as New York State)?
  • What regulatory purpose is served by having every jurisdiction have veto power of the ability of a business to transact at all (i.e. the regulator can refuse or withdraw the license at any time for any reason)?
  • What regulatory purpose is served by having NYS (or any other jurisdiction) dictate the form in which retained earnings and profits may be invested?
  • what regulatory purpose is served regional restrictions as to the fiat currency to use?
  • What regulatory purpose is served by requiring trust accounts be maintained in USD?
  • How many jurisdictions, worldwide, should a business expect would be examining its records annually?
  • How many different kinds of reports, worldwide, should a business expect to be filing quarterly?


Neil obviously gave this much thought, and these are all excellent questions that I suspect multinational banks, insurance companies, financial entities and other corporations ask themselves daily.

A sad reality of the 21st century, that all multinationals have to address, is that each location they are in often has different legal requirements. Each country, region and city (or county) they do business in have laws covering all areas you can think of, including labor, finances, health, safety, and contracts. Considering cryptocurrency is multinational in nature, our businesses can expect to have to deal with the regulations of each location they do business in, and will need the help of local legal experts, lawyers, to do so.

The simple answer to the questions posted above is that every government has a duty to define how their residents (natural, corporate, legal, etc.) do business within their jurisdiction, and they establish rules meant to protect their citizens and finance their activities.

Governments are regional and they establish all sorts of rules for doing business in their territory. Some countries openly prohibit some commercial activities (Bolivia and Ecuador come to mind), others try to force merchants to work in specific prescribed ways, and others don’t do much to control anything. Governments also charge fees (or levy taxes) for their services, which also requires regulations. Most multinational corporations address this by creating regional subsidiaries and affiliates, each following their local rules, regulations and requirements. Thus, a corporate employee in one country is considered an expatriate when travelling to another, irrespective of the individual’s nationality.

Territoriality is an important concept for governments. Bitcoin and most other cryptocurrency (altcoins) are not bound to any governments, yet individuals are bound by and, in general, must follow their government’s instructions. Please note that many governments are now passing laws to avoid tax evasion and money laundering by their nationals worldwide. Britain and the USA actually also have world-wide corruption prevention legislation for citizens, residents, and anyone with a presence in these countries. As predicted and joked about many years ago, we are becoming a global village, and though we have no unifying government cryptocurrency promises to become the economic system for the future.

Now that Bitcoin and other altcoins are more popular, many countries are actually promoting their own national altcoins, and we can expect even more regulations on this new type of money. Multinational Cryptocurrency Businesses will probably open local branches or independent affiliates that will acquire licenses and other local requirements in an independent manner, while coordinating their activities with their “home office”. And in places where there is a ban on using unauthorized virtual or digital money we will probably find that the local economy suffers.

Helping cryptocurrency businesses survive in this complex confusing jurisdictional reality is where we, the Cryptocurrency Standards Association, come in: As a world-wide member association we can determine standards and best practices that will:

  • simplify cross-border cryptocurrency financial activities and make them easier to understand,
  • advise existing financial players as to what directions might be best to take, and
  • advise governments as to what rules and regulations can promote economic activity while meeting that government’s needs with respect to our industry.

As I see it, Bitcoin was originally designed to be an open world-wide system for exchanging value with no government or central control, in a supposedly perfectly safe manner. Most altcoins have followed this model, but we have examples, including the Mt.Gox fiasco, where the trust was broken by changing the system. To cite just one factor that is highly regulated in traditional financial services, setting up the equivalent of deposit accounts for clients (as Mt. Gox did), requires oversight. Mt. Gox’s and other’s failures and criminal activities created a need for government intervention and control, beyond that of preventing money laundering, and New York State is one of the latest governments making use of existing financial regulations to extend their regulatory control over cryptocurrency.

Is this good? Is this bad? Honestly I simply think this is an opportunity, with risks but also benefits for those that know how to work with it. Existing banks, financial services, and corporations have the incumbent advantage of knowing how to work with these rules. But cryptocurrency enthusiasts who lack this experience are evidently at a loss and could find themselves locked in litigation due to a “newbie” mistake. Sadly, in the financial field there is little flexibility for not following the rules (called Non-Compliance) and many small money service businesses in US are surprised when the government will blocks all their funds and even jails the owners, due to criminal charges. Few businesses can survive this, so many decide to quickly pay a fine instead of running the risk of losing everything.

Is this a case of “Do what I say, Or Else!”?

Not really. I would compare it to tourists, renters and gamblers, having to follow the “house rules”. Every place is different, and the smart individual takes this into account before deciding to go or stay there. So, cryptocurrency businesses should be advised to look at the rules for financial services in the locations where you plan to be present or even have a bank account: those rules will probably apply to you in the future, probably sooner than you think. Just remember that “house rules” are a cost of doing business.

Thanks in advance for your ideas and ocmments on the subject!


About Manny Perez

President of Space Renaissance USA Co-Chair of the Cryptocurrency Standards Association, CRYPSA, Certified Professional Coach, with Coaching Hispano USA Certified AML and Compliance Specialist. I promote success and empowerment of entrepreneurs and leaders, including those of new technology. devs.
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3 Responses to Regulations, Regulations, Regulations

  1. Neal Gafter says:

    The unstated assumption in your blog is that any business that deals with cryptocurrencies is “like a bank” in significant enough ways that it should be regulated like one. However many businesses in the space have nothing in common with banks relevant to the purpose of the regulations.

    You’ve also ignored the fact that the proposed regulations for cryptocurrency businesses are much more burdensome than the equivalent regulations placed on banks. Yet there has been no justification for those additional burdens.

    • Manny Perez says:

      Thank you for your comment, Neal.
      Not all businesses that deal with fiat currency, traditional money, are banks, yet all are subject to siminal rules: transactions above certain amounts are subject to scrutiny under anti-money laundering laws and the world wide effort to control criminal and terrorist activity.
      The assumption that a business who works in crytocurrency “has nothing in common with banks relevant to the purpose of the regulations” ia a common one, shared by the insurance, legal, real estate and other industries, yet they are all subject to the regulations because they are all entry points for criminal money to get into the financial system.

      The justification for the burdens on individuals and small businesses is simple: they are often used as “mules” for dirty money.

  2. Pingback: Business needs true privacy | Manny's Biz Talk

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