March 29, 2014
New federal regime for cryptocurrencies comes into further focus
This past week, two sources of information became available indicating how the Canadian government will increase its regulation and oversight of virtual currencies, including bitcoin. Through a combination of legislative and regulatory changes, Parliament and the Financial Reports Analysis Centre of Canada—Canada’s financial intelligence unit—will wrap “dealers” in virtual currencies into the current money services business regime. Conceptually, this is somewhat similar to the approach taken to exchange functions by the Financial Crimes Enforcement Network in the United States. The federal government has clarified things somewhat but, at the same time, left us with many unanswered questions. We will have to wait for further regulatory guidance to see how the whole regime in Canada plays out, but I think things are looking very positive for FIU regulation of cryptocurrencies in Canada.
The Current Structure & Canada’s Economic Action Plan
FinTRAC is an independent agency that acts as Canada’s FIU to enforce the Financial Action Task Force’s 40 Recommendations. It does this primarily through the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the PCMLTFA) and Regulations (the Regulations). I have previously written about FinTRAC, its FATF-mandated role, and the PCMLTFA and the Regulations. As explained in the earlier post, FinTRAC has thus far taken the view that bitcoins are not “funds” within the meaning of the PCMLTFA and the Regulations. That means that FinTRAC will not regulate many bitcoin exchange functions under the MSB rules in Canada.