A Practical Guide to..How the Isle of Man plans to ‘control’ bitcoin exchanges.

As has been widely reported the Isle of Man Government recently issued a press release on their whereyoucan.com website entitled “Isle of Man Moves to Control Digital Currencies”.

 

My goal in this article is to scratch below the surface to try to explain exactly what the announcement means in practice.

 

If you are considering setting up a Bitcoin exchange in the Isle of Man then this should help you understand what’s likely to be involved in setting up here.

 

Specifically the press release says that – the Isle of Man intends to take specific actions aimed at helping protect businesses and customers utilising digital currencies. In case the meaning isn’t entirely clear; they are referring controlling cypto-currency exchange businesses which allow people to convert their ‘real money’ (Sterling, Dollar, Euro etc) into bitcoin and the like.

 

The statement trots out the usual lines about what a responsible lot we are in the Isle of Man in respect of Anti Money Laundering matters – which is fair enough because we are and is also designed to maintain the Island’s already raised profile in this emerging sector – this I think is also a smart move.

 

However, the ‘meat’ is contained in the Q&A document which amongst other things confirms that while there are no current plans to regulate digital currency exchanges via the existing Isle of Man financial services legislation, they will be subject to the Proceeds of Crime Act 2008 and the Designated Business (Registration and Oversight) Bill 2013.

 

So what does this mean in practice ?

 

It means that digital currency exchange businesses will not require a licence to operate from the Isle of Man but they will need to register with the Financial Supervision Commission (‘FSC’) – our local regulator- as a ‘Designated Business’ (for anti money laundering purposes) under the proposed Designated Business (Registration and Oversight) law.

 

Lots of other Isle of Man businesses will be subject to the same regime; these include, estate agents, accountants and lawyers, You can find more – including a copy of the consultation and the draft legislation here

 

Registration with the FSC will be a prerequisite requirement for businesses wishing to operate as bitcoin exchanges in the Isle of Man and operating without such a registration will be illegal.

 

One way or another – either by an industry code of practice, or by guidelines issued by the FSC – minimum standards of anti money laundering practice will be expected and required by such businesses so that they comply with the Proceeds of Crime Act 2008 and presumably the Terrorism Finance Act 2009 (although this isn’t mentioned).

 

For more information about Isle of Man Anti Money Laundering laws see here

 

Anti money laundering compliance is a well trodden path in the Isle of Man so its reasonable to assume that this will require appropriate systems and procedures to be put in place to guard against such crimes; specifically..

 

(1) Certified identification documents will need to be obtained from clients – certainly for transactions above a certain threshold value.

(2) Certain staff will require regular anti-money laundering training so they are equipped to recognise hallmarks of suspicious activity and understand the steps required of them if they form a suspicion of money laundering.

(3) Source of funds / source of wealth information will be required from clients – again most likely for clients engaged in transactions above a certain threshold value.

(4) Experienced Money Laundering Reporting and Compliance officers will need to be appointed by your business.

 

Once registration is granted and business commenced the FSC will be responsible for monitoring the business’s compliance with the law; specifically this will involve site visits and detailed inspections of registered businesses files.

 

If you think that this appears quite is quite ‘involved’ and potentially expensive for an unregulated business that doesn’t require licensing then I think that you are right.

 

However, the good news is that ‘designated business’ status is likely to make it much easier for Isle of Man bitcoin exchanges to secure banking and merchant facilities with nervous counter-parties. It also provides a mechanism for the Government to exclude ‘cowboy operators’ and so should also improve customer confidence and boost the sector.

 

Thankfully there are a wealth of financial services professionals in the Isle of Man (including ourselves) who are very familiar with the local anti-money laundering laws who can help you to set up your bitcoin exchange business in full compliance with the Isle of Man laws.

 

Feel free to drop us a line if you would like to discuss how we might assist you with your bitcoin business.

 

photo credit: PerfectHue via photopin cc

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