Below is a summary of some of the significant legal and regulatory actions 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.
Washington Legislature Looking to Block Virtual Currency Payments for Marijuana
On the heels of Washington’s recent proposal to amend the Uniform Money Services Act (“UMSA”), the legislature has introduced a bill to amend the Uniform Controlled Substances Act (“UCSA”) to prohibit payment for marijuana and related products with virtual currency. This would be unwelcome news for Washington’s marijuana retail customers, who are already restricted from making payment with credit cards.
New Hampshire Lawmakers Propose Virtual Currency Exemption
Two representatives from the New Hampshire House have proposed HB 436, exempting virtual currency activities from regulation under its money transmitter statute. This isn’t the first time the New Hampshire legislature has considered virtual currency regulation. In late 2015 it was one of the first states to incorporate a definition of “convertible virtual currency” within its money transmitter statute. It is unclear whether the bill’s sponsors propose adoption of an alternative regulatory structure for virtual currency activities. Although it does not appear to be related, New Hampshire passed HB 356 in June, 2016, establishing a committee to study cryptocurrency regulation.
North Dakota Legislature Considers Virtual Currency Regulation
Upon review of SB 2100 proposing a definition of virtual currency, the North Dakota Senate passed a substitute bill to “provide for a legislative management study of virtual currency.” The bill proposes studying the “feasibility and desirability of regulating virtual currency.”
Chinese Regulators Remind Exchanges of Regulatory Compliance Obligations
The Chinese regulators have been actively engaging with the nation’s major virtual currency exchanges, causing wide swings in the price of bitcoin. This isn’t new for the bitcoin community, whose price is primarily driven by the Chinese market. The trouble began on January 6th when the People’s Bank of China met with bitcoin exchanges to remind them of their regulatory compliance obligations. The State Administration of Foreign Exchange cited the “recent trend of ferocious and huge fluctuations in bitcoin” as the impetus for the meeting. However, there is speculation in the industry that these measures are more likely connected with China’s desire to prevent capital flight. Following the meeting, several Chinese exchanges restricted margin trading in light of regulatory concerns.
UAE Central Bank Bans Virtual Currencies
The Central Bank of the United Arab Emirates issued regulation on January 1 banning “all virtual currencies (and any transactions thereof).” The provision is buried within the Regulatory Framework For Stored Values and Electronic Payment Systems, which was issued as part of a broader initiative to position the UAE “as a global leader in digital services.” The regulation covers all “cash-in” and “cash-out” services, retail digital payment transactions, peer-to-peer digital payments, and remittances. Although the Regulatory Framework is positioned as driving innovation and fostering financial inclusion, while protecting consumers, it does not provide explanatory notes in connection with the ban on virtual currency transactions.
Poland Introduces Legislation to Create a Central Database of Accounts
A draft bill introduced in Poland aims to create a create a Central Database of Accounts to be maintained by the Ministry of Finance, which would provide authorities rapid and easy access to information on the locations of certain funds and other liquid assets. The draft bill would apply to banks, credit unions, payment services providers, and “entities that offer products or services that enable storage of authentication data required to access virtual currencies,” among others. The bill defines “virtual currency” as “a transferrable property right, the subject of which is a digital representation of value, which has its equivalent in a means of payment, treated as an instrument of exchange and a unit of account, without the status of legal tender and not constituting electronic money . . . which may be transferred, stored or sold electronically as a means of payment.” Covered entities would be required to notify authorities within 24 hours of the opening or closing of an account, or a change to account information, with penalties of up to PLN 1.5 million or up to three years in prison. The bill is notable in so far as it marks Poland’s first attempt at regulating the digital currencies market.
Israel Tax Authority to Clarify Virtual Currency Taxed as an “Asset”
The Israel Tax Authority issued a draft circular on January 12, providing guidance on the taxation of activities involving virtual currency. As outlined in the circular, virtual currency shall be treated as an asset, and taxed accordingly. Any sale of virtual currency will be taxed as the sale of “property,” subject to capital gains. In addition, income derived from mining activities will be taxable at the applicable rate. The draft circular, in Hebrew, is available here.
For a comprehensive list of developments please see our Virtual Currencies: International Actions and Regulations.