Duhaime Law has written a fantastic breakdown of the important elements of Canada’s crypto-currency regulation. Bill C 31 amends Canada’s Anti-money laundering Act to include dealers in virtual currency – bitcoin, litecoin et al, aka crypto or digital currencies – in the AML regime.
According to Duhaime Law the most significant changes are:
- Regulates Bitcoin as MSB – Bitcoin dealing, more specifically referred to as “dealing in virtual currencies” in Bill C-31, will be subject to the record keeping, verification procedures, suspicious transaction reporting and registration requirements under the PCMLTFA as a money services business.
- Does not define “dealing in virtual currencies” – The phrase “dealing in virtual currencies” was left undefined and it is not known what the defined term will encompass in terms of business activities once defined by regulation.
- Registration with FINTRAC – Bitcoin dealers will be required to register with FINTRAC and if successfully registered, to implement a complete anti-money laundering compliance regime.
- Captures foreign Bitcoin companies targeting Canada – Bill C-31 extends to: (a) entities that have a place of business in Canada; and (b) entities that have a place of business outside Canada but who direct services at persons or entities in Canada. Bitcoin businesses in Canada, however, that provide services to persons or entities outside of Canada are exempt from Bill C-31 for those external services.
- Prohibits banks from opening accounts for Bitcoin entities if unregistered – Under Bill C-31, banks will be prohibited from opening and maintaining correspondent banking relationships with Bitcoin dealers that are not registered with FINTRAC. This is an extremely important aspect of Bill C-31 and Bitcoin businesses should ensure they understand what a correspondent banking relationship is and how it can affect the provisions of banking services to them.
Most bitcoin firms built regulatory compliance, including AML/CTF, into their business models from start-up. Rather than AML having to fight its way into the pillars of an organisation, as it did with banking, it is a foundation for the business. This should make for more straightforward and open discussion on regulation and implementation.
Although the law could indicate that Canada thinks virtual currencies pose a genuine threat to the economy as the next channel to be exploited by money launderers and terrorist financiers, having a legal framework for dealing in crypto-currency will make doing business easier and should allow firms to reduce the legal and regulatory risks associated with dealing in virtual currencies.
The next steps for Canada are to draft regulations for the industry.