Through this essay I wish to show how the conflicting legal status of cryptocurrency in the world’s major financial hubs serves to negate its global application. I will then focus primarily on the United States in establishing its applicability to the existing financial safeguards in place.
Cryptocurrency is a financial panacea for individualists, a mechanism to evade control and bureaucracy, promoting autonomy and self-governance. These themes seemingly detach from the established policies of our current financial regulation. Conversely, I argue that the principles underpinning cryptocurrency allow it to be encapsulated within existing regulatory frameworks. That virtual currency intermediary’s act as a nexus between its global application and regulatory control, allowing current financial legislation to be imposed upon it, with minor alterations.
Table of Contents
1. Introduction
2. Underlying Blockchain Technology
3. Conflicting Legal Status of Cryptocurrency
3.1. United States
3.2. United Kingdom
3.3. East Asia
4. Applying Existing Legislation to Virtual Currency
4.1. Exchanges acting as Money Transmitters & Intermediaries
4.2. Money Laundering & Criminality Aspects of Crypto
4.3. Application of Securities Law
5. Eternal Resource Asymmetry
6. Conclusion
Objectives and Core Themes
This essay critically discusses the challenges posed by financial technologies to regulators, focusing on the legal status and regulation of cryptocurrencies. The primary objective is to demonstrate that, despite the decentralised nature of blockchain technology, existing legal frameworks can be adapted to govern virtual currency exchanges and mitigate risks such as money laundering and securities fraud.
- The regulatory challenges of decentralised blockchain technology.
- Comparative analysis of the legal status of cryptocurrency across global financial hubs.
- The application of US anti-money laundering and money-transmitter laws to crypto-exchanges.
- The intersection of securities law and the regulation of Initial Coin Offerings (ICOs).
- The inherent resource asymmetry between financial regulators and private financial innovators.
Excerpts from the Book
4.1. Exchanges acting as Money Transmitters & Intermediaries
State money-transmitter laws serve to protect the consumer from suffering financial loss by regulating money transmitters. A money transmitter is a business that transmits money from one person to another, in this context, these laws are purported to relate to cryptocurrency exchanges, such as Coinbase or Kraken. In applying existing money transmitter laws, it is crucial to outline the underlying aim of this policy; consumer protection. The government began this process of establishing cryptocurrency application by applying the US Treasury Departments Financial Crime Enforcement Network (FinCEN) guidance as to which regulations apply to individuals or entities using them.
The obvious issue with the existing framework is that its application rests solely with brick and mortar institutions, banks and unions, traditional money transmitters. Moreover, an exchange must obtain a license to carry out these activities and these requirements vary from state to state. A time-consuming process given the global application of cryptocurrency. To combat this inefficiency a more novel approach should be considered, specifically the implementation of a cryptocurrency act modelling after the Nationwide Mortgage Licensing System (NMLS). The application of a similar framework would ensure cohesion between state regulators in their management of cryptocurrency exchanges licenses. Notably, the issue of requiring separate state licenses is not a new issue, this requirement flagrantly circumvented in the build up to the 2008 financial crisis, where mortgage originators were scantly regulated. In response to this, the Safe and Fair Enforcement of Mortgage Licensing Act (SAFE Act) was introduced.
Summary of Chapters
1. Introduction: Introduces the uncertainty caused by emerging financial technologies and argues that cryptocurrency can be encapsulated within existing regulatory frameworks.
2. Underlying Blockchain Technology: Explains the technical fundamentals of blockchain, highlighting its decentralised, immutable, and tamperproof nature.
3. Conflicting Legal Status of Cryptocurrency: Examines the fragmented legal landscape of cryptocurrencies in the US, UK, and East Asia, noting the general classification as a commodity.
4. Applying Existing Legislation to Virtual Currency: Discusses the practical application of US money-transmitter laws, anti-money laundering statutes, and securities regulations to the crypto market.
5. Eternal Resource Asymmetry: Addresses the persistent disparity in resources between regulatory bodies and the innovative financial industry.
6. Conclusion: Summarises that while disruptive, cryptocurrency challenges require a rethink of existing frameworks rather than completely new legislation.
Keywords
Cryptocurrency, Blockchain, Financial Regulation, Money Transmitter, Securities Law, Anti-Money Laundering, FinCEN, Decentralisation, US Law, Commodity, Consumer Protection, ICO, Market Manipulation, Resource Asymmetry, Banking Law
Frequently Asked Questions
What is the central focus of this essay?
The essay explores the challenges posed by financial technologies, specifically cryptocurrencies, to financial regulators and discusses how established regulatory frameworks can be applied to them.
What is the primary research question?
The central task is to critically discuss how financial technologies represent a major problem for financial regulators, using cryptocurrency as the primary case study.
What is the key conclusion regarding regulation?
The author concludes that regulation must not stagnate; rather than being a problem, the disruption caused by cryptocurrency necessitates a rethink of how existing legislative frameworks are applied.
Which scientific/legal method is utilized?
The author employs a comparative and descriptive legal analysis, examining judicial precedents, current legislation, and regulatory guidance within major financial hubs, with a heavy emphasis on the US legal context.
What are the main thematic areas covered in the main body?
The main body covers the technical nature of blockchain, the comparative legal status of crypto globally, the application of money-transmitter and anti-money laundering laws, and the intersection with securities regulations.
What are the essential keywords associated with this work?
Key terms include Cryptocurrency, Blockchain, Financial Regulation, Securities Law, Anti-Money Laundering, and Resource Asymmetry.
How does the author propose solving the inefficiency of state-by-state licensing?
The author suggests modelling a new cryptocurrency act after the Nationwide Mortgage Licensing System (NMLS) to ensure federal cohesion and reduce the regulatory burden.
What role do crypto-exchanges play according to the author?
The author views exchanges as "chokepoints" that bridge the gap between anonymous decentralised networks and the controlled legal environment, allowing for the enforcement of existing financial regulations.
What does the Howey Test signify for crypto-assets?
The Howey Test is used to determine if a financial instrument qualifies as a security; the author highlights its application in the Shavers case to bring crypto-investment schemes under SEC jurisdiction.
- Quote paper
- Ronan Garvey (Author), 2015, Bitcoins. Financial technologies as problem for financial regulators, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/544538
