Some legal and regulatory issues

Bitcoin in Singapore

Lam Pak Nian LLB (Hons), NUS

Sim Kee Boon Institute for Financial Economics, SMU

Presentation on 13 June 2014 at Lee Kong Chian School of Business, SMU

What is Bitcoin? Benefits and legal risks

Regulating with a light touch

Bitcoin is… Money?

– Medium of exchange, Unit of account, Store of value

Not legal tender – Currency Act: Only currency issued by MAS

• (Not?) Property? In a ‘virtual’, decentralised system? – Torts/Personal/Intellectual property law:

conversion? – Insolvency law: personal vs proprietary claim? – Contract law: mistake, fraud?

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1. WHAT IS BITCOIN?

Regulators say Bitcoin is…

Taxable – IRAS: Income from trading or mining

Not subject to MAS’s oversight – Payment Systems (Oversight) Act targets

identifiable operator – Not regulated per se but will be for AML/CFT:

• Tharman (21 Feb 2014), MAS Press Release (13 Mar 2014)

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1. WHAT IS BITCOIN?

Main benefits

• Faster and cheaper payments • Possibility for further innovation

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2. BENEFITS AND LEGAL RISKS

Legal risks • Money laundering and terrorist financing

• Counterparty risk in a decentralised system

– Who bears the loss in a defective transaction, mistake or fraud? • Miner (who?), exchange, end user?

– Unclear; needs to be sorted out in the law • Torts/Personal/Intellectual property law: conversion? • Insolvency law: personal vs proprietary claim? • Contract law: mistake, fraud?

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2. BENEFITS AND LEGAL RISKS

Legal risks

• Money laundering and terrorist financing – AML/CFT regime: criminalisation,

confiscation and reporting • Corruption, Drug Trafficking and Other Serious

Crimes (Confiscation of Benefits) Act (CDSA) • Terrorism (Suppression of Financing) Act

– Suspicious Transaction Reporting Office • Money changers and remittance businesses: keep

records and do due diligence > $5000 • MAS will extend reporting requirements to “virtual

currency intermediaries”

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2. BENEFITS AND LEGAL RISKS

Policy considerations

• Prudential regulation of financial system – Reduce information asymmetry

• Bitcoin is difficult to understand – Promote systemic stability

• Reputation risk of financial institutions • Payment methods pose substantial systemic risk

as failures impede the ability of parties in meeting their payment obligations

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3. REGULATING WITH A LIGHT TOUCH

Policy considerations

• Constructive involvement – Bitcoin is here to stay and impossible to shut

down • Encourage beneficial uses and future innovation

and meaningfully minimise risks – Impulsive to ban disruptive tech as knee-jerk

reaction to illicit activity • Long-term reform

– Uncertain laws and regulatory environment hamper breakthrough inventions like Bitcoin

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3. REGULATING WITH A LIGHT TOUCH

Three lenses for regulation • Micro lens: Address specific risks first

– Prevent criminal activity via existing checkpoints (also US FinCEN’s approach)

• Macro lens: Prudential regulation & stability – Advocacy and advisory to reduce information

asymmetry – Promote systemic stability with self-disclosure – Allow laws, rules and confidence to develop

• Int’l lens: Coordinate meaningful regulation – BIS’s Basel Committees? IMF? – Sui generis Bitcoin Convention?

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3. REGULATING WITH A LIGHT TOUCH