A recent report by Canada’s Standing Senate Committee on Banking, Trade and Commerce recommends that digital currency businesses be regulated like money transmitters, but pushes for a “lighter regulatory touch” so as not to stifle development.
The 64-page report summarizes the findings of their 14-month investigation, highlighting both the risks and opportunities presented by digital currency.
It notes how digital currency can potentially be abused for tax evasion, money laundering and terrorist financing. Canada’s financial crimes monitor, the Canada Revenue Agency and Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), would have to “prepare to navigate and use blockchain technology.”
Yet, it warns against over-regulating the industry, still at a “delicate stage” of its development. “This technology requires a light regulatory touch – almost a hands off approach. In other words, not necessarily regulation, but regulation as necessary,” the report concludes.
With the recent development of blockchain technology for applications outside bitcoin’s use as a currency, the report compares the merits and drawbacks for data security, particularly for banking and credit cards. For example, it cited TD Financial Group, which reported spending upwards to $200 million annually on cybersecurity. The bank said it is attacked thousands of times daily, highlighting that banks are not immune to such threats. Yet, the bank believes digital currency algorithms can eventually be hacked as well.
On the other side of the coin, the report cited Andreas Antonopoulos, a leading Bitcoin security expert who previously addressed the Canadian Senate on digital currency. He believes that decentralized digital currencies are less likely than centralized payments systems to be successfully hacked because authority is not concentrated in a single entity.
The report contains 8 recommendations:
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(1) The government should create an environment fostering innovation and minimize actions that may stifle development.
(2) The government should consider adopting blockchain technology to deliver services and enhance data security.
(3) Digital currency exchanges should have the same requirements as money services businesses.
(4) The government should work with other countries to formulate global guidelines, while preserving the “light touch” approach.
(5) Find solutions for the absence of banking services for digital currency businesses.
(6) The government should provide “concise information” to the public about the risks for digital currencies.
(7) It should also produce concise information for relevant tax treatment.
(8) The appropriateness of regulation should be assessed over the next three years.