Virtual currencies divide opinion. They can be seen as a currency or an investment; as the next big thing or the next big bubble; as an unfathomable mystery or a familiar part of everyday life. What is undeniable is that they are booming and becoming part of the mainstream.
In the first half of 2016, around $4.25 billion in bitcoin was traded in Japan – around 50 times more than the previous year. A recent study from Juniper Research has speculated that transaction values may triple to $92 billion this year.
The question of what to do about this, and how to seize the opportunity, falls not only on lawyers, tech firms and service providers, but also on governments and regulators, which must strike a careful balance between establishing effective oversight and control and allowing innovation and experimentation in this fast-developing new area to move forward.
It appears that Jersey has achieved this balance.
When politicians approved the little-remarked on Proceeds of Crime (Miscellaneous Amendments) (Jersey) Regulations 2016 earlier this year, they did so on the basis that a legislative order would be established to create a 'regulatory sandbox' for developers and innovators working with virtual currencies to build, test and experiment with products, services, business models and delivery mechanisms in a live environment without immediately incurring all of the normal regulatory consequences and costs.
The proposal for the sandbox was a welcome acknowledgement that to require those developers and innovators to bear the full brunt of compliance with Jersey financial services laws and regulations would limit such activity on the island.
Further, by setting a turnover threshold of £150,000 (the 'economic threshold' test) before requiring that developers and innovators be subject to active supervision under the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 and thus liable for an annual fee, the government and regulator have created an environment in which testing and development of virtual currency applications can flourish.
This testing creates many possibilities, as virtual currencies:
- can almost instantly be transferred across borders without bank charges or foreign exchange commission;
- are much more difficult to steal because ownership records are not held by a single bank, but are instead in multiple places at once; and
- have a value that is not affected by inflation in the same way as state currencies.
The creation of the sandbox through the introduction of the economic threshold test is a vital step, and one that marks Jersey out as a testbed for financial technology (fintech) development, where innovators can directly reduce the cost and time to get a platform to the testing and running phase.
The £150,000 turnover threshold creates a fair balance between providing innovators with the opportunity to explore the opportunities created by virtual currencies and applying a light regulatory touch that does not block the development of new concepts before they are fully formed.
A clear trend is emerging – virtual currency use is on the rise and becoming part of the mainstream. The Jersey regulatory approach places the island in a strong position to foster, grow and develop its fintech business community.
For further information on this topic please contact Raulin Amy or Steven Meacher at Ogier by telephone (+44 1534 514 000) or email ([email protected] or [email protected]). The Ogier website can be accessed at www.ogier.com.