EB72 – Siân Jones: Cryptocurrency Regulation Update: Uk, Isle Of Man, California, Bitlicense

Transcript

hello welcome to epicenter bitcoin the show which talks about the technologies projects and startups driving decentralization and the global cryptocurrency revolution my name is sebastian cuccio and my name is brian fabian crane we're here today with one of our sort of most frequent guests or or probably our most frequent guest or well guest host you could say yeah sean jones she's covered for us regulation many many times and so thanks so much for for joining us today it's lovely to be with you guys both again um it's only been what two or three weeks since we all met up in 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 uh we've done uh quite a few episodes on bitcoin regulation and actually when we kind of got started a year ago and we we did quite a few i think it was it was a top that kept coming up a lot and sean you were often so generous to join us because uh i think you understand this uh the bitcoin regulations better than well almost anyone and uh you're also always generous to you know record some great interviews on bitcoin regulation 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 it's 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 that regulation is such a boring subject for people in the exciting field of of um bitcoin and digital currencies 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 we i we i and sebastian were talking about this a little bit before this is a question of who cares about bitcoin regulation and and why right well certainly like me but um well right there i mean there's obviously people who are just sort of you know the more kind of a futuristic type uh of person who thinks you see cryptocurrencies and things like oh this

is amazing it's going to change the world so much there's going to be like smart robots like move around cars and and all kinds of things like that then you might say our regulation that is extremely boring right and then i think there's uh also the people who are more kind of libertarian-leaning who favor decentralization as a complete decentralization you know going offshore trying to build things that can't be regulated and and 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 to actually use it uh 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 a super important topic so yeah it's interesting i think there are these different camps and you know for some this is a really really important interesting topic and for some it's it's just something that's like why are we talking about this well i mean that's what you say is is very true i think though that the two extremes in a way do come together um and they come together because um i guess everybody's interested in seeing

wider adoption um for this wonderful experiment to work um you need lots of people to use it and uh in the real world if one's pragmatic um you you cannot escape that that that people the people who are going to use it live in places they occupy places they've their lives function in in places and and places have generally speaking laws and governments and so on and so whatever your ideological standpoint whatever your political standpoint um you still come back to the reality that you've got to uh recognize that that regulation in one

form or another exists especially around financial services of any sort um generally and so it's inescapable and so addressing it and getting it addressed getting 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 um and it helps encourage wider adoption then it's it's 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 we can't escape it if we want this thing to to to be widely accepted i i do agree that it is a reminder that we live in

places for one thing no no no but what i mean is so no i'm joking at first but what when 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 uh digital currency's response to the call for information issued by the her majesty of the queen's treasury during the show uh that sounds so fun um one thing that kind of stands 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 we're 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 it's incompatible but but you make a a very good point and and i suppose the consumers are the citizens the um depositors the users of these um crypto funds and so forth and um i don't know whether it's a good thing or a bad thing but we've certainly particularly in the in the west become accustomed to having our

um governments and others um make sure that we're not ripped off and that businesses are run where they take you know our money uh those businesses are run prudently efficiently not wildly speculatively that the people who look after our funds are competent uh that they're not thieves um 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 uh week or two we've we've had another major incident where um you know where

where fools were parted from their money um because the 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 right right i mean the thing is i i don't consider myself to be a libertarian but on this point here it seems first of all we are seeing like these issues being addressed in the bitcoin space you know i mean for example uh you know let's say voltore that we've been talking with uh you know they do like you know bitcoin exchanges on the blockchain multisig starts being used through all

those things that are happening in in the bitcoin space addresses of course they're not perfect of course people still going to get ripped off and of course some people don't use it etc but you know they are being addressed in some ways and i think in the future we will 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't lose their money but personally i just don't think the way governments tend to approach this is particularly effective right so i mean it may even even if you 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 on the balance my view this is mostly a negative effect in general um i think the first wave of um regulatory reaction um probably um only look through the lens of the existing financial services world and how that is regulated and tried to apply the same kinds of rules and the principles um 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 on but the approach there is very much one of here's the existing sort of framework and we're just going to um find a way of making bitcoin businesses fit that existing framework but we're also seeing governments who are saying no this stuff is is different it ha it presents a different set of challenges some of the underlying public policy issues are the same like not ripping off investors or depositors or um 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 um one of the money laundering bodies you know 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 you today from 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 um some things which we haven't even thought about uh that it might be able to bring some benefits to society so we've actually got now governments almost on our side and and there's some demonstrations of that

some illustrations of that for example what's happened in the uk last week with um some government announcements yeah but i i find that the the very fact that you have bodies like the like the european union or you know this uk her majesty's a queen's treasury um 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 um that it's 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 you know 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 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 i i mean just talking to people right just talking to people still about bitcoin now i still get like the same sort of um aprioris as i would last year which is drugs uh money laundering 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 who isn't um one of the the the bitcoin cod connoissenti if that's the right word it's not part of the the bitcoin world it's just an ordinary person but he's heard about this stuff or she's read about it um thinks it might be interesting because everybody wants to to make as much money as possible um by saving costs or by seeing appreciation in value or whatever 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 to do that work for them and so if it's regulated it actually does um send a signal that it's something that they can have confidence in i mean we all know that banks are regulated but but you know 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 uh that i don't think necessarily will always look to the state or to some sort of regulatory body for uh protection and assuming that you know we're protected because of this i especially with such a new technology like bitcoin i think people that that get into the ecosystem or that start getting interested in it um will do their own homework and know very well that they're not going to be protected by many people but people want to be wrong but this is the point sebastian they want to be protected they don't want to have the the worry um i take your point and i agree with you

um 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 with our social 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 um we just don't want to worry about it we want to be able to put it in the bank um 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 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 um 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 there for an awful lot of competition that people were somehow

locked into their banking arrangements and so they passed laws to effectively um mandate uh the transfer of or ease of transfer i should say of 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 your 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 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 people other people to take care of things for them etc 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 their money getting stolen people want someone else to take care of it for them and of course there is that minority that you know uses pgp and uh you know does their offline backups in the bitcoin space and all

that sort of stuff but uh 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 the thing is just i have some reservations whether um it's government regulations and documents that's going to get us that but i i of course do agree with you that people want that yeah and and you're absolutely right i mean we we trusted governments to look after our monetary system and if you happen to live in cyprus i i lived there for four or five years and left

just a year before um all the banks crashed and um effectively there was i think about a 40 effectively a 40 tax placed levied on on on people's deposits over a hundred thousand euros um because the banks had collapsed and and they but before everybody thought that they they were protected by their government who and by the you know european central bank and by everybody else somebody else there were so many people involved so many regulators you can't believe surely um you couldn't have a systemic failure of of the banks and um and yet it happened so you're right

brian no and i wasn't suggesting that people aren't people care about being protected uh simply i think that you know the world is very different from 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 all right can i quote you on that i like it sure what are you right there you're right it is changing i'm i'm i'm speaking to you from somebody's apartment in brussels that um i'm i'm staying in through airbnb and um the person whose apartment it is has has

entrusted somebody she doesn't know uh to to take over her home for a few days actually you're quite right there it's a different it's a different world now people wouldn't have done that they do it because of new trust mechanisms uh um reputation mechanisms and so on and so forth so you know you're right the world is the skates are not regulated by the way it's like i mean absolutely yeah good point however unfortunately where money is involved people i mean i don't think that's quite true right i mean airbnb has a regulatory issues and issues of government all over the place all the time i mean i think they uh you know they have a lot of

they run in a lot of conflicts there as well and yes obviously but obviously sean you're right but i mean when it comes to financial transactions and financial services uh regulations are much more onerous and complicated and 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 that manage the reputations that's true and and but yeah but your point brian her majesty this queen is not issuing uh this the papers on how that we should regulate uh the the blossoming uh sharing economy um 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 this all the time i mean sure yes i'll tell you something even more amusing than that here in brussels and the the local city banned uh uber and uh the the comp the european competition commissioner um uh got really rather angry because one um she used to use it and two it was saving uh the um european parliament and commission an awful lot of money in uh in costs and so interestingly

enough you had uh you had the uh you know 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 um juxtaposition isn't there absolutely uh so there's there's lots more to talk about in fact we're going to get into this uh um response to the call for information issued by her majesty of the queen's treasury whenever i read this i i couldn't help but think of like hear uh monty python voices saying her majesty the queen has this shirt oh yeah i i have to i have to slightly um 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 her queen the the queen bit doesn't actually appear in there and i don't actually and everybody says hmrc oh no that's something else that's her majesty's revenue and they're the they're the tax collectors and uh and and so forth and her majesty's treasury is what finance ministry okay well i apologize to her majesty so we'll uh we'll get back to that in just a second before we do that we'd like to talk about shape shift uh shift just this is a fast and easy way to buy and sell alt coins they support uh up to 25 different alt coins right now

uh most of which remain unregulated and um so it's uh it's a really fast and easy way to trade say you want to buy some litecoin or you want to send some uh some bitcoins to someone but you perhaps have some dogecoin or any other of the currencies that they support uh so let's um let's uh demo show the screen here and so as you can see so you go to shapeshift.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 uh you know they've got bitshares they've got

ripple recently they added this clams coin if anybody knows that's gone i'd love to know what clams is and does 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 litecoin to that address and uh the litecoins would get sent to that person's bitcoin address or yours or anybody else's for that matter um so it takes about 30 seconds to do it's very fast and uh they only take a small fee so it's already included in the price uh when you're setting the when you're setting your your currency um so what's great about shapeshift is that they don't require any personal

information you don't have to give them your email address even and um so your information stays perfectly safe and private so give it a try and we'd like to thank shapeshift for the support of web center bitcoin all right so back on uh her master's her majesty's treasury response to call for information on digital currencies uh 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 um wednesday last week so just a week ago and so can you broadly uh describe the context in which

this document was released and what it means absolutely firstly the this paper was published um as part of the budget announcements the the uk has a government sort of sets an annual budget although part way through the year it kind of has a um a sort of review and uh the government um announcement our chancellor the exchequer our finance minister um announces a whole set of measures for the for the ensuing year and beyond and 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 um in may so in about five weeks time or thereabouts and um it's going to be it's one of the closest run elections for a very long time so we have no idea whether um 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 election so um it's essentially it's a budget proposal for the for the ensuing period um by way of history in the summer last year

a very self-same chancellor george osborne stood up at a a major innovation event in canary wharf in london and announced um that he was basically supporting um fintech industries and wanted to see the uk prosper and mentioned specifically amongst one or two other areas mentioned specifically digital currencies uh he announced that there was going to be some work done through the rest of the year investigating you know how it could best be supported

and where if and to what extent um 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 um key industry players uh submitted there and not just from uk but from around the world i mean submissions were made from um businesses that were outside the uk but obviously most of them had aspirations to do business um in the uk which is why they bothered

to to do it you had organizations like the uh uk digital currency association make um a very substantive submission and other bodies like the british bankers association you know the um the evil bankers put in a uh put in a a submission and um the treasury chewed on all of this and um gave it some thought and the paper that it published last week was the outcome and essentially it uh highlighted a number of um key measures the the first um

was um the regulatory one the government said that um it felt that um virtual currency exchanges businesses at the interface with fiat currencies should be subject to the anti-money laundering regulation and framework that exists um for pretty much all other businesses and they would start a more detailed consultation on how that should be done but essentially um its government policy to to bring bitcoin exchanges into the into the anti-money laundering regime

secondly and perhaps a little surprisingly the government announced 10 million pounds 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 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 to um to to an industry involved in virtual currencies it's brilliant news um and so that was the uh the the second and the final sort of key point that came out

was um 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 was an and it announced an initiative with the british standards institution which is one of the sort of global leaders in in standards organizations to help come up with uh the detail of that and that's actually work that's being done in conjunction um with the uk digital currency

association to to come up with a 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 um in germany there has been no statement of that sort in any way right i mean i think the government tends to be uh 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 to comply with that i mean there's even the question of the v8t we won't have time to go into that but um that's still sort of looming and i think the german government as far as i understand has often been sort of of the stance that yes there should be v8t applied on that uh totally irrespective and totally ignoring the repercussions that would have for cryptocurrency startups for the the innovation all the positive things that can come here and and i guess the 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

um 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 um this stuff that's digital currencies um 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 um russia which um seems to have a policy that's that's anti digital currencies all the statements i've seen have tended to come from individual um you know 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 banking or payment systems um regulation policy um and so they have taken the whole approach rather than um and and looked at all the consequences and then intended and otherwise so so sean uh 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 um definitely i think it's going to be it's a signal to say that that the uk is a country that is going to welcome be welcoming um for bitcoin businesses we still are struggling in the uk with uh 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 of of bankers but more importantly the 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 um the new regulator for that is the payment systems regulator so and she will open up access she's already made that clear that's part of her remit um do you have any insight into

why those four banks are so hostile against uh providing access to the clearing system for bitcoin companies um i think it's part of um a a policy of de-risking um which banks have been doing to um reduce their exposure to regulation i mean but that is complete nonsense no i mean there's obviously no risk in like letting some people deposit some bitcoins on epic uh 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 that is suspicious to the authorities um you know some people in east germany might find that fairly reminiscent of the way things used to be before um 89 or whenever it was uh but essentially the banks are are the government's um eyes and ears on on money laundering and if they fail to to to 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 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 um 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 uh were closed and there's the example of

um remittances to somalia where somalis who left the country and were working abroad in the 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 uh but there was only one banking link one of them as it happens it was barclays bank in the uk i believe who who had um a presence in somalia and so all of the remittance businesses had to

channel their their funds through barclays to get it back into somalia to feed their families uh but because of the policy of de-risking because it was seen as a riskier class of business to handle because they you know 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 and they the banks closed accounts they closed accounts of these remittance companies and they basically cut off uh the banking system and the remittances that we're going back to feed people um yeah i mean it's it's obviously a bigger risk

to uh you know pay a fine than if some people can't feed your families in africa i mean that's a pretty that's a pretty clear choice as a bank which which way you're going to go well you know they've got shareholders haven't they yeah so you also wanted to talk people about the isle of man i mean it's it's an area that you've been deeply involved and you you spend a lot of time there and it has it's i think it's a 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

uh 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 it was touted so can you maybe share a bit of an update what's what's going on there and and what the situation is looking like absolutely um firstly um 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 a it's an island of about 80 plus thousand people that sits halfway in the irish sea between mainland uk uh mainland britain i should say so that's england scotland wales and the island of ireland

um and and and it's an entirely independent state so it has its own legislature in fact it has the oldest parliaments on on the planet that's still running and it sets its own laws it has its own regulatory regime and it it it's been known in the past as an offshore financial center and um it it is very proud of its reputation as one of the leading um offshore centers because it diversified from sort of pure offshore financial business into other industries um space bio pharmaceuticals biomedicine

i 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 um for for the island man it accounts i believe for about four percent of the island's um gdp and they wanted to repeat that success uh with cryptocurrencies um on the contrary i um 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 welcoming of uh

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 to fruition in just the last week um on the 17th of march so um 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 regulation 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 uh 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 um royal ascent and that should happen in a few months time and that piece of legislation um 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 bitcoin exchange in uh in the olive man or any sort of bitcoin business actually and the island man will probably be an awful lot less expensive buy a massive amount uh from new york so i mean the the the registration fee that i believe has been been laid down is something like 500 pounds and probably a similar amount i would imagine per annum um i think new york you you have your application starts at 5 000 but but all the other paraphernalia that you have to have in

place is going to push you into uh tens or even hundreds of thousands um this isn't a kind of industry or technology specific regulation this isn't a regulation that's about all manner of uh standards and methods of operation this is rather just about money laundering and and that's what you might describe as a light touch regulatory regime it'll it'll force um bad actors to think twice about coming to the isle of man whilst allowing um

genuine well-run businesses to thrive and prosper um so i would say the island man is a 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 a good jurisdiction to get things off the ground if you if you um if you've got a good reputation very easy very welcoming 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 letstalkbitcoin.com to sign in enter the magic word and claim your part of the listener reward so well before we wrap up you know we wanted to talk about other things that happened since we have you on and since you are quite knowledgeable about these topics uh talk about uh what's happening in the us but before that like i just want to get an idea of uh coming back to this uh her majesty's treasury uh document we were talking about so where where do we go from here what are the next steps uh that needs to be taken in order for actual regulation to come to be passed in the uk and and how long can we see that

occurring um it's not going to be an overnight thing i think the expectation is perhaps that suddenly things will will be different it this announcement this budget announcement on the paper that you refer to is is is an indication of policy this is government policy uh but it has to be translated into into into something real so there'll be a consultation phase that takes place after the new um after the elections in in may um 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 time frame um the the business about funding uh the the 10 million for uh research that money has already been allocated it's in the um it's in the the budget the money's been put aside for for this next financial year starting in april so that's um that that things could happen there even sooner and do we have any ideas to what this research could be well it's whatever it's what it's whatever the

the research research bodies uh will will sort of apply for some of this money to to to carry out some research project i suspect it'll be mainly focused on the things on sort of future potential um applications for um for blockchain um so bleeding edge stuff to look at the possibilities and i suppose research can take sort of six months 12 months projects before you get some some things drop out but you know if you start to put money into it things start to happen so i think it will be good now do you think that

uh that this paper and the conclusions that uh that draws perhaps sends a signal to other uh european jurisdictions or even the european union as to what type of approach those other bodies should also be what other what approaches they should take to bitcoin regulation i should be very surprised if other leading jurisdictions in europe went um when 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

the environment has been signaled now um you know they want startups to come to um uh to uh paris or perhaps even lille uh or berlin or uh other um european centers so absolutely i think others will be so um let's let's just very briefly uh come to the the news and you mentioned the financial action task force um what is it and what's going on there with garcia 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 uh measured one against the other by their adoption of those sort of standards um quite interestingly uh it's holding a public sector consultation here in brussels uh this week it's on today and uh tomorrow i'm gonna be attending now i will be there tomorrow for the virtual currency session and um and that's really why uh 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 well what are the underlying aims and how can they have anti-money laundering and what 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 reason reasonably appropriate well-written uh demonstrated good understanding of digital currencies uh but but had no idea how they were going to sort of apply

um anti-money laundering to it and that thinking's obviously been 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 in 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 de-risking that we talked about earlier on um they they're actually on our side they don't like the fact that banks have used anti-money laundering as an excuse for de-risking they they feel that anti-money laundering shouldn't be a blanket reason

for um you know 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 but the spirit of the thing is about assessing risk and taking appropriate action what they call the risk-based approach rather than the prescriptive you know box ticking exercise and they don't like the fact that banks seem to be um using it as a sort of broad brush wholesale excuse me 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 then that they fear that if banks

you know keep their doors closed to all these innovations that the money will still flow uh but in unauthorized ways and therefore the aims of anti-money laundering will be uh will be uh will will be lost it will be an unintended consequence but um in development excellent and and then i guess the sort of looming thing that has been the most discussed most prominent uh in the bitcoin space with regards to regulation uh is the bid license proposal now the last draft came out for comment period on on march 4th and it said it was a 30-day period i know it was february 4th for that 30-day period where one could still

submit comments ended on on march 4th and uh 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 and we might actually see this very soon sort of passed as law what what has been proposed and what is sort of in the last in the last uh version so what do you expect do you expect that to happen in the next in the next month or i expected to have it happen quite soon so we had one draft that was very controversial draft it had a an extended um comment period and many of the comments

were acted on and uh were reflected in the uh revised version that you you've just talked about we're now at the end of the much shorter comment period for for that i'm not anticipating any significant um changes maybe none at all and um the way that it works in new york state is that this uh this set of 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 yeah yeah 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 uh and uh and it may be true that like you know in some minor ways this was addressed but i still think it is a completely uh completely crazy what the these guys have come up with and i remember one of the one of the things they mentioned 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 uh regulated and then if i have a coinbase account what wouldn't that mean if i send money to someone else coinbase needs to know who the other person is including identity address etc etc 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 um to meet this um set of regulation i mean one one one

almost even more absurd sort of um approach is that the the money transmission sort of world um sort of in the existing regulated sectors um has um have rules about having to having information about the payer travel with the transaction so in other words uh when you and when you send euros from berlin to um to lille um across well actually that's probably not a good example because within europe uh within the eu that's not quite true but let's say you had to send some some some

dollars from berlin to to to new york information about you as the payer has to be sent with the message to the receiving bank um so if you like information about the source of the funds travels with the transaction and of course that really is an impossibility with um with bitcoin so there are going to be some very real challenges in how this stuff applies um obviously businesses are going to have to look very carefully at how they how they structure their business models uh in order to comply or indeed whether as in many cases i suspect whether they want to do business in new york at all well and of course of course the the

interesting interpretation of uh the 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 maybe it will be enough if you block ip addresses i guess well no it probably isn't enough that's that's that i mean you've highlighted a really interesting point um the the pro as drafted the um scope is about the widest we've ever seen in

in in what's known as extra territoriality in other words um uh the way it's been drafted is that if any part of the transaction a transaction is 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 um 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 um brings it within the scope

of this regulation and essentially if if anybody contravenes it if you should have been licensed with a bit license and you failed to do so and it subsequently comes out you could um you know 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 so he 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 that's just completely crazy i mean i think that's a really uh sort of imperialism or an imperialistic attitude to law

at its worst and i mean i think it will 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 or shape-shift quite obviously it does not completely clear that they're going to be violating the law i mean pretty much any business going to be violating this law well there are other challenges as well and ones that have cost implications because there's um 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 sort of depth if you like how how far you have to dig if you like and at its most extreme um it's known as enhanced due diligence and you really do have to do an awful lot of work when you know to prove an awful lot of stuff the new york regulations 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 in germany even though that transaction has nothing whatsoever to do with with the us that that there are huge costs and barry you know 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 uh for people to develop software that is located uh operated locally right so let's say we

use we use electrum well that's just open source software he has no control so obviously that's you know that it doesn't really apply so that there's a huge uh incentive to do things like that and then the other thing is you know you can go offshore and just say like whatever i don't care about the um 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 uh 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 in new york because who would want to

use it uh and it increases massively their cost so it's it will be extremely interesting i think how this all turns out absolutely and um 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 uh 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 uh on licensing digital currency businesses or exchanges at any rate and bringing them into line with sort of money uh transmission type laws unlike new york's 46 page i think it is um regulations uh the the california one is 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 uh european digital currency and blockchain technology forum which is a public policy platform a kind of um advocacy resource to the european parliament and and the commission and other institutions and they are hungry for information about uh this stuff i mean we we're consulting uh giving advice briefing members of european parliament and um and others addressing meetings virtually every month one form or another and we're organizing a big expo which one of the meps has sponsored

in the parliament in the first week of november specifically to feed this this thirst for knowledge before they even start on on thinking about regulation and this is 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 um well i think we're at the end of our show i mean we could definitely talk about regulation uh much longer and and i'm sure we will come back to this topic because uh it's just the reality that it's a very important topic when it comes to establishing bitcoin businesses and getting big people to use bitcoin

integrating it and sort of making uh making progress with uh this cryptocurrency revolution we're all working on and if i might add brian so i agree with everything you were saying regarding new york and how how it has 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 of new york who may want to travel there so um i i'm very much looking forward to seeing what will happen uh in terms of uh where startups will want to establish uh once this law passes

that's i think that's that's a 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 uh companies move over here that's that's the hope of say the uk government than in 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 in california in silicon valley and so forth they'll be you know there's their incentives for them to come to to um to london the big fintech center in around silicon roundabout for example so yes um 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 it's huge overhead and cumbersome and they they may lose um you know competitive advantage that they could get again elsewhere but um certainly the big money um you know think back a few weeks ago to

to the new york stock exchange putting uh putting in towards 75 million dollars was it into uh into coinbase um you know the the the established the blue chip world will definitely i think gravitate towards uh somewhere like new york uh because it it benefits from the from those standards and actually the costs of regulation uh for big business really big business traditional business is quite small yeah so uh yeah sean thanks so much for joining us for a bit of a regulatory update uh 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 um so thanks so much for listening uh you can follow us on twitter if you want to app center btc and we'll be back one week from now with another episode so thanks and until then