Canadian Underwriter

Why feds don’t call bitcoin a currency

October 15, 2018   by Greg Meckbach

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One of the biggest risks posed by blockchain-based currencies is financing of terrorism and it is reasonable to ask whether there should be tighter regulation of this technology, federal finance minister Bill Morneau told a Senate committee.

Bitcoin is one application of blockchain, a computer database technology that has a variety of uses, including insurance applications.

“While many refer to bitcoin and other crypto-assets as currency, the vast majority of central banks and regulators, including the Bank of Canada and the Canada Revenue Agency, don’t view them as such. That’s because they can’t be easily spent and because their value is not reliable,” Morneau said before a recent meeting of the Standing Senate Committee on Banking, Trade and Commerce.

Bitcoin could help improve cross-border payments and back office functions, reports Celent, a think tank owned by Marsh & McLennan Companies Inc. Blockchain could also help insurers automate and manage claims and payment, says the Blockchain Insurance Industry Initiative, which is comprised of some of the biggest reinsurers and commercial property and casualty insurers.

Software vendors describe blockchain as a record of transactions which is difficult for hackers to change and is therefore suited for organizations who may not trust one another.

“Because they operate outside traditional payment systems, crypto-assets are inherently vulnerable to money laundering and terrorist financing,” Morneau told the senate banking committee Sept. 26. “Their increased levels of anonymity, transferability and accessibility make them attractive to those engaged in organized criminal behaviour, and they are definitely being used in that fashion.”

Earlier this year, the federal government proposed new regulations stipulating that companies dealing in cryptocurrency would have to report financial transactions with a value of more $10,000 or more.

Senator Sarabjit Marwah, former chief operating officer of the Bank of Nova Scotia, asked Morneau whether there should be “much harsher regulations,” such as banning certain crypto-currencies.

“I think that’s a reasonable question,” Morneau replied without giving a definitive yes or no.

“At this point, the judgment has not been that we need to, collectively or at an individual level, tighten the rules further than we have currently proposed to do in the anti-money laundering rules,” said Rob Stewart, an associate deputy minister of the finance department.

Morneau did confirm the federal government views cyrpto-assets as “securities.” This means it is up to the provinces and territories to regulate them, much in the same way they regulate the trading of stocks and bonds.

The federal government’s job is to regulate banks, said Stewart.

“We’re not particularly well set up to regulate fintechs that might be using blockchain or innovative payment methods,” Stewart told the senate banking committee Sept. 26.

Some governments might bring in restrictions on buying and selling digital currencies, Vancouver-based HIVE Blockchain Technologies Ltd. warned in a securities filing released this past July.

The International Monetary Fund has warned that risks of crypto-assets include “unproven infrastructure that is potentially unstable, unregulated intermediaries and service providers, and the inability to cancel transactions,” Morneau said during the senate committee hearing.

The purpose of the meeting was to discuss digital currencies three years after the release of a senate report titled Digital Currency: You Can’t Flip This Coin!