Nations of the Commonwealth are Offered to Legalize Bitcoin, Still Anonymity Is An Issue

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04.02.2016

The governments of the Commonwealth’s of Nations (formerly known as the British Commonwealth) Working Group on Virtual Currencies published a report calling all 53 member states to initiate a discussion on legalization of Bitcoin and other cryptocurrencies.

The document has been the result of almost a year’s research work and consultations with industry experts and organizations such as UK Digital Currency Association, British Banking Association, a Kenyan remittance service BitPesa, Ripple Labs as well as academic researchers like Prof Alan Woodward from University of Surrey and Dr. Sarah Meiklejohn from University College London. The research has been conducted from August till October and was published on 3rd February.

The goals of the underlying research studies were to:

1. raise awareness of emerging trends in the use of virtual currencies among
Commonwealth member countries and sensitise states on the need to follow
such developments;
2. determine any risks that these trends pose, with a focus on the potential of virtual currencies to be associated with criminal offences, including money laundering and the financing of terrorism;
3. enable member countries to acquire an overview of existing responses and
possible new responses to address any harmful impact and to set milestones for future action.

The Key Findings of Working Group’s Research

Bitcoin is popular. According to report the widespread use of virtual currencies is observed all over the Commonwealth. So Bitcoin is quite frequently used in almost half part of the world, from India to Australia and to Great Britain.

Bitcoin is “mostly” legal. The Commonwealth nations generally favor legalization of virtual currencies, with the only exception of one:

Prohibition is to fail. Despite the efforts of some governments to get rid of Bitcoin, the effective ban for virtual currencies seems to be not possible.

Bitcoin is useful despite its risks. In particular, the report covers application of Bitcoin as both payment means and criminal use-prone technology. Possible criminal use cases of Bitcoin, as usually, include money laundering and terrorism financing. On the other hand, the many advantages of virtual currencies are to drive the development of member countries.

The existing regulation is ineffective. The regulation adopted by some member countries of the Commonwealth has been “limited, uncoordinated and fragmentary”.

Recommendations to Member States

The report’s recommendations address the following issues:

Legality and awareness:

“Financial regulators and central banks should consider making public statements on the legality of virtual currencies and the applicability of any existing legislative frameworks. Education and funding should be provided for training for law enforcement,” the report reads.

Legal frameworks, law enforcement and co-operation:

The report suggests that member states should alter their regulatory frameworks to fit the technology, and establish a cooperation with other regulators across the globe. The report states that regulation for ATM’s and exchanges is necessary. According to the document, the regulation should be “innovative”, as crimes may be committed with no involvement of fiat money whatsoever.

The FATF guidance and recommendations:

Compliance with the AML/CFT Act (Anti-Money Laundering and Countering Financing of Terrorism) should be enforced: that might mean that vendors and exchanges will have to provide access to customer accounts on behalf of government officials. Yet there’s no evidence that KYC (Know your customer) policy will be applied, so it remains unclear how much anonymity is to be violated. However, the report also recommends the governments to limit regulations to fiat, so bitcoin only activity might be not affected.

“Any regulatory and legislative frameworks should focus on interactions with fiat currencies and avoid attempting to regulate the underlying decentralised ledger technology. Such frameworks should be technologically neutral and avoid stifling innovation.”

The report has been already welcomed by World Bank’s representative:

The Commonwealth’s report follows another report issued earlier this week by the Payment Systems Research Team of the Bank of Korea. It encourages the regulator to closely monitor the blockchain-related developments and even partake in them. However, the report expressed doubt as to prospect of digital currencies as payment means:

“It is not very likely that digital currencies will grow to such level as to replace or pose a serious threat to legal tender or other major payment instruments,” the report read.

Recently the European Commission, the executive body of the EU, announced its plans to tighten accountability requirements for cryptocurrency exchanges and bitcoin wallet providers. The measure is a part of the EU’s extended efforts to combat financing of terrorist groups.

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