Blockchain Week in Review – February Trio, two thousand seventeen – Virtual Currency Report
Virtual Currency Report
Blockchain Week in Review – February Three, two thousand seventeen
Below is a summary of some of the significant legal and regulatory deeds that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest.
The Saga of Coinbase and its IRS John Doe Summons Proceeds
In November two thousand sixteen with approval from a federal court, the IRS served a John Doe summons on Coinbase requesting information on its users from January 1, two thousand thirteen through December 31, two thousand fifteen reportedly to catch individuals using crypto currency to evade taxes. In an effort to work with the IRS without disclosing an overly broad amount of private customer information, Coinbase suggested an alternative solution: issuing 1099-B reports, which brokerage firms use to report customers’ gains and losses. The issue remains unresolved. See Laura Shin, Forbes.com, http://www.forbes.com/.
Fresh Hampshire Proposes Amendments to its Money Transmitter Act
Fresh Hampshire legislators seek to enact an exception to money transmission requirements for Bitcoin startups. HB 436, filed on Jan. 12, seeks to add a formal definition of “virtual currency” to the state’s laws and to create an exemption from money transmission requirements for “persons conducting business using transactions conducted in entire or in part in virtual currency.” The bill also adds a clause to the definition of a “digital currency money transmitter” a designation which, if passed, would include “maintaining control of virtual currency on behalf of others.” NH Bill Text; https://legiscan.com/NH.
In 2015, the Fresh Hampshire legislature added the following definition of “convertible virtual currency” to its statute, thus bringing virtual currency related activities under money transmitter regulation, effective Jan. 1, 2016:
“Convertible virtual currency” means a digital representation of value that:
(a) Can be a medium of exchange, a unit of account, and/or a store of value;
(b) Has an equivalent value in real currency or acts as a substitute for real currency;
(c) May be centralized or decentralized; and
(d) Can be exchanged for currency or other convertible virtual currency.
N.H. Rev. Stat. Ann. § 399-G:1
The proposed amendment would substitute this definition. The replacement comes after Fresh Hampshire passed HB three hundred fifty six in June 2016, which established a committee to explore cryptocurrency regulation.
Federal Regulators Issue $13 Million in Fines and Restitution for Prepaid Card Service Disruption
This week, the federal Consumer Financial Protection Bureau (“CFPB”) entered into a consent order with MasterCard and UniRush to pay $13 million for RushCard breakdowns that cut off access to funds for thousands of consumers. The CFPB’s order concludes that preventable failures of MasterCard and UniRush prevented “tens of thousands of vulnerable consumers” from accessing their own money. The order opines that the breakdown in access even “threw some [consumers] into a individual financial crisis.” The CFPB noted that RushCard is advertised as a way for consumers to get direct deposits to their card “up to two days sooner,” which includes deposits of government benefits of payroll funds. But, as the order alleges, when UniRush made a switch to MasterCard’s processing platform in Oct. 2015, the transition resulted in almost one thousand consumer complaints to the CFPB. The CFPB concluded that numerous legal violations occurred as a result of the transition and issued a consent decree against MasterCard and UniRush. To obey with the order, MasterCard and UniRush are required to pay approximately $Ten million in restitution to ems of thousands of harmed consumers; draw up a plan to prevent future problems; and pay a $Trio million civil penalty to the CFPB Civil Penalty Fund. CFPB Press Release; Consent Order.
Georgia General Assembly Proposes a Fee on Money Transmission for Individuals
The Georgia legislature has proposed a fee on all money transmission conducted for individuals. The proposal would impose a $Ten.00 fee on all money transmissions up to $500, plus 2% on the value in excess of $500. The financial institution would be responsible for collecting the fee and remitting to the state. If enacted the bill may prove prohibitive for Georgia customers engaged in frequent money transmissions, remittances, including digital currency transactions, as well as the companies responsible for collecting the fees, as each trade could potentially be swept within the provision’s reach. Notably, the bill carves out brokerage activity undertaken by licensed brokerage firms. The bill does not show up to have any type of carve out for puny transactions, but it does emerge (In Section Two) to create a tax credit for tax payers who pay the fee to receive a credit for the amount of the fee paid. Resident for whom a tax is not imposed may request reimbursement of the amount of the fee paid in the preceding calendar year. The bill is available here.
Switzerland Conditionally Approves Bitcoin Rock-hard to Operate and Initiates Consultation on Fresh Fintech Regulations
After almost two years of effort and investment, bitcoin wallet and vault provider Xapo announced that it has received conditional approval from Switzerland’s financial market regulator to operate in Switzerland. This is a significant regulatory breakthrough for companies that provide custodial storage services for virtual currencies. The approval depended on several factors, including membership in a “self-regulatory organization.” Xapo asserted that because it does not accept deposits, it should not be coerced to go through the rigorous requirements of a banking license. This conditional approval from Switzerland comes shortly after Switzerland’s cabinet proposed fresh “light-touch regulations” for fintech companies aimed at bolstering business and competitiveness. http://fortune.com/2017/01/27/bitcoin-firm-switzerland/.
On February 1, 2017, the Federal Council in Switzerland initiated a consultation on amending the Banking Act and Banking Ordinance to contemplate the fintech area. The aim is to include a revision that will ensure barriers to market entry for fintech firms are diminished and to enhance the competitiveness of the Swiss financial center. One of the ideas included in the amendments will be an area for innovation, or a “sandbox,” where the acceptance of public funds up to a certain threshold will not be considered as “operating on a commercial basis” and firms would be able to attempt out a business model before they are required to apply for licensure. The Federal Council of Switzerland.
England Experiments in Local Digital Currencies
Liverpool, the Northwest English borough in the United Kingdom, recently launched its own local digital currency. It’s called the Liverpool Local Pound (LLP) and was launched about a month ago. The LLP presently has about Three,000 users, and a transaction using the currency occurs about every 5-10 minutes. Local currencies are not fresh to England, but have yet to be successful on a larger scale. Anyone can use the LLP, and users can pack their digital wallets using a credit card. Consumers and Merchants using the LLP can get more for their money in Liverpool by taking advantage of discounts and offers targeted at locals. Gavin Haines, Tomorrow’s Tender? Liverpool gets its very own digital currency, Telegraph, available at http://www.telegraph.co.uk/.
The Governor of the Bank of England also announced in a speech last week that in the future, “it is possible that virtual currencies and FinTech-based providers, particularly where they build up direct membership to central bank payment systems, could begin to displace traditional bank-based payment services and systems.” http://www.fsb.org/wp-content/uploads/The-Promise-of-FinTech-%E2%80%93-Something-New-Under-the-Sun.pdf.
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