Banks And Cryptocurrencies Global Evaluation: Americas

The US Commodity Futures Trading Commission (CFTC) chairman Chris Giancarlo said he doesn’t see comprehensive crypto legislation coming from the federal level in the near future, CNBC reported April 30. Earlier this day, the US Securities and Exchange Commission (SEC) Commissioner Robert Jackson called the initial coin offerings (ICO) market a prime example of an unregulated securities market vis-a-vis the issue of consumer protection in ICOs.

These statements can be read as another sign of the inevitable future regulation of cryptocurrencies. A common trend seems to show that there’s no turning back from government oversight into crypto dealings, and the US, Canada, and other players in the western hemisphere are paving the way for global understanding and regulation of digital markets.

The following assessment of cryptocurrency regulation in the Americas is part of a larger series of pieces evaluating regulation of the flourishing global fintech industry. Part one of the series looks at activity in Asian hotspots like Japan, Hong Kong, Singapore and Taiwan, and how governments are facilitating or hindering growth. Part two examined crypto regulation and the critical attitudes held by many European leaders.

The list below is based on thorough news research, but should in no way be considered complete. If you have more detailed information on banks and the crypto relationship in your country, we encourage you to share it in the comment section.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision

The United States

In terms of regulation in the US, all eyes are on the SEC and CFTC. These federal agencies, which are tasked with both protecting investors and facilitating open, transparent, and competitive financial markets, will play a significant role in facilitating mainstream adoption of cryptocurrency.

Crypto assets are currently subject to securities laws under the Securities Act 1933, but the outdated regulatory framework makes governing many diverse business plans tricky.  The SEC requires trading platforms to register as exchanges with the agency, for lack of better characterization, digital assets are defined as securities and fall under the jurisdiction and regulatory purview of the SEC.

Another important federal agency in the mix is the US Internal Revenue Service (IRS), which considers cryptocurrency as property for federal tax purposes. It formed an investigative team in Feb. 2018, which will scrutinize fiat exchanges for tax evasion and work alongside international criminal agencies to investigate unlicensed exchanges.

Likewise, the American banking sector is taking a cautious approach to crypto dealings. Prominent US.banks JP Morgan Chase, Bank of America and Citigroup initiated a global trend to ban the purchase and transfer of virtual currencies with debit and credit cards in February. JP Morgan Chase and Citigroup cited the fluctuating price of Bitcoin and general volatility of the crypto market as reason for the changes in policy, however, they have voiced a willingness to review policies as the market evolves.

Some banks are refusing to process international wire transfers for accounts associated with cryptocurrency, and some decline Bitcoin futures trading on US exchanges. In many instances, businesses associated with cryptocurrency are having difficulty forming constructive relationships with banks.

However, Goldman Sachs, the poster child of the traditional banking sector, recently hired a crypto trader as vice president of digital asset markets after increasing client demand for access to the new tech arena. Various Goldman Sachs and Wall Street executives are reportedly leaving their careers in traditional banking for work in the cryptocurrency sector.

Although many prominent banks have moved to ban use of virtual currency, this doesn’t mean they are opposed to the technology. Blockchain networks could eliminate high structural costs of financial services, provide a shared ledger that minimizes risk for banks, and strengthen regulatory reporting of banking activity.

The US based tech company R3 first initiated a Blockchain project to build a new operating system for the banking industry in late 2015, since then over 70 of the world’s largest financial institutions have joined forces to lead research and development of distributed ledger technology. The group announced the pilot launch of a trade finance platform in February, which aims to develop an open-trade finance network to simplify processing across supply chains.

JP Morgan quit R3 in April to develop its own interbank payment platform, Quorum, using the Ethereum Protocol. JP Morgan and the National Bank of Canada successfully tested the Blockchain platform this month, which is described as enterprise-focused and uses distributed ledger technology to provide transparent access to regulators while protecting the privacy and anonymity of customers.

The United States Postal Service filed a patent last September with provisions for a Blockchain-based system to authenticate user information and secure online transactions, which marks a trend of more companies filing Blockchain patents in the US.

Canada

The cryptocurrency industry operating in Canada’s highly developed economy existed for years without much government interest, but Canadian authorities have jumped on the regulation bandwagon after global financial agencies began applying more scrutiny to virtual exchanges and fraudulent ICOs earlier this year.

Canada’s Standing Committee on Finance, FINA, passed amendments on pre existing finance laws in 2014 to update laws to include cryptocurrency, require crypto firms to register with the agency, and prohibit banks from dealing with businesses not registered with the agency.

The changes have not gone into effect but FINA is reviewing the amendments that were passed and potentially applying more regulations. The committee publishes proposed regulations every Saturday through the government publication, the Gazette.

Crypto advocates play an active role in assuring regulations properly address shortcomings of the industry without hindering its growth, and are invited to provide testimonies at FINA committee hearings. While Bitcoin itself is not regulated, advocates urge regulators to consider how peripheral businesses that individuals use to access virtual markets exert substantial influence.

Canadian crypto firms have not seen as much government involvement and investigation of ICOs in comparison to their American counterparts, but as of April 6, the Ontario Securities Commission made various inquiries into the operations of crypto firms and may begin enforcing pre existing securities laws. In line with attitudes of the US SEC, Canadian regulations will seek to facilitate the growth of the crypto industry, not restrict.

Banks, on the other hand, have different concerns. The Bank of Montreal, Scotiabank and Toronto Dominion Bank, three of Canada’s biggest, banned purchase of cryptocurrency with debit and credit cards in February, following the lead of US banks.

Despite the ban, a fintech company based in Vancouver, Mogo, announced it will provide a simplified service for Canadians to buy and sell Bitcoin just days after major banks banned exchanges.

On a separate note, the Canadian government and banks have both taken an interest in Distributed Ledger Technology (DLT). The government announced the launch of a Blockchain-based system, Known Traveler Digital Identity, which provides a secure platform for cross-border travelers to transfer personal information to government agencies.  

The Royal Bank of Canada announced it will allow purchase of virtual currency only under certain circumstances. However, the bank also filed a patent last year for a Blockchain-based credit score platform used to make credit score calculations more transparent.

Likewise, Toronto-Dominion Bank filed a Blockchain patent with the US in 2016 for a new point-of-sale system to digitally track asset transfers.

Canada’s first ever Blockchain-based Exhange Traded Fund received approval from Canadian authorities earlier this year. The fund began trading on the Toronto Stock Exchange in February and deals with various DLT corporations.

The Canadian Securities Exchange introduced a Blockchain-based securities clearing and settlement platform to enable companies to issue equity and debt through tokenized securities in February. The issuance of security tokens will be subject to regulation by the securities commission.

The National Research Council of Canada also announced its experimentation with the Ethereum Blockchain in January to test the use of public Blockchains in the transparent administration of government grants and funding.

Mexico

The crypto industry has a promising future in Mexico, which been named as a leader in Latin America. More than half of the population doesn’t have access to traditional banks accounts and rapidly eroding citizen trust in financial institutions presents a big opportunity for crypto platforms in the future. Only 50 fintech companies were operational in 2015, but by 2017 that number reached over 2,000.

Mexico’s senate passed a bill to regulate cryptocurrencies, and is awaiting President Pena’s signature, to legitimize its use, and promote stability in the market. The bill requires crypto operators to register with the Bank of Mexico as ‘Financial Technology Institutions,’ and will be regarded as equals to banks.

The bill addresses crowdfunding and designates the Bank of Mexico as the the final arbiter of which cryptocurrencies will be allowed on the country’s exchanges.

The legislation follows warnings from Mexico’s central bank in late 2017 that Bitcoin is a risky investment and clients should be cautious of scam ICOs.

The legislation was drafted in general terms and it is expected that regulators like National Banks and Securities Commission, the central bank and financial authorities will add specific provisions for companies dealing in the industry.

The Mexican government announced a Blockchain project designed to track public contracts and provide transparency to the public tender process. The country is approaching election season and a presidential candidate was quoted saying he would fight government corruption with Blockchain.

Argentina

Bitcoin received a warm welcome when it was first unleashed in Argentina in 2015 after a newly elected President lifted stringent monetary policies from the previous administration. Citizens felt ‘betrayed’ by the manipulated exchange rates and severe inflation of their national currency, and Bitcoin provided a fresh start for the country’s finances.

Argentina’s Central Bank governor was responsible for proposing the July 2018 deadline for regulatory proposals at the G20 summit last month.

The government has also shown an interest in Blockchain and uses a timestamp platform, Dapp, in certain elements of weekly bulletin reports.

Rofex, the largest futures market in Argentina, is considered offering Bitcoin futures to its’ clients as interest in cryptocurrency has grown exponentially since last year.

Brazil

Cryptocurrency could prove to be a life changer in Brazil, where many don’t have access to traditional banks accounts or adequate financial services.

Brazil’s largest investment firm filed documents with the Department of Federal Revenue to launch an over-the-counter Bitcoin exchange amidst a crackdown on crypto exchanges by major banks in the country. Banks are reportedly closing accounts and suspended  services to national exchanges, due to lack of “commercial interest” and concern of illicit activity.  

Despite the recent change in policy, the cryptocurrency in Brazil is well established and particularly essential for the population.

In February, a mobile financial service provider, Airfox, released a free app for Brazilians as an answer to the country’s expensive and bureaucratic banking system.

CoinBr, a Brazilian crypto company, partnered with an up-and-coming currency, Dash, and will be provided in over 13,000 locations across the country.

In other interests, cryptocurrency is subject to the authority of the Brazilian tax authority, which considers virtual currency property and requires investors to report capital gains for taxes. Crypto businesses and exchanges are regulated by the Brazilian Securities and Exchange Commission (CVM) which prohibits local investment funds from buying Bitcoin, and requires exchanges to comply with AML laws.

The former president of Brazil was jailed for his involvement in a government sponsored Bitcoin-based money laundering scheme, in which he misappropriated nearly $22.4 mln of government funds.

Since the political turmoil of the scandal, the Brazilian government has invested in a Blockchain-based mobile app that will function as a registry system for signatures and petitions.

The Central Bank of Brazil partnered with the American-based R3 Blockchain alliance, and is using its’ Corda platform to develop Blockchain for different elements of the country’s current financial infrastructure. The bank is also developing proofs-of-concept on four other platforms and focus on using Blockchain for real time gross settlement systems

The government also created a Blockchain-based land-titling system as a platform for registering property ownership. The initiative aims to curb illegal development of land in the Amazon rainforest.

Venezuela

Venezuela, a country plagued by hyperinflation and a struggling economy, issued an oil-backed national cryptocurrency, Petro, in February, in an effort to attract foreign investors.

President Nicolas Maduro ordered businesses and government services to accept cryptocurrency and Petro earlier this year. But the order was at odds with the Venezuelan Parliament which declared cryptocurrency illegal just weeks earlier. Critics in parliament argue Maduro is using Petro as a means to skirt US sanctions.

Further, Petro’s release was immediately met with conflict. Bitfinex, one of the world’s largest crypto exchanges, release a statement condemning and restricting Petro use on the platform due to the US sanctions on Venezuela. President Trump also banned american citizens from purchasing Petro in March as part of a campaign to pressure the country’s autocratic leadership.

Venezuelans are heavily investing in Bitcoin and altcoins to salvage what value remains in their holdings of the national currency, Bolivar.

Mining increased exponentially in response to the devastating inflation of the national currency, but the government reportedly arrested many suspected miners before establishing concrete rules on the practice. The government requires cryptocurrency miners to register on an online registry, which was created at the end of last year and is seen as the first steps toward crypto regulation.

The government continually pushes support for Petro, and even created a cryptocurrency training course for citizens to learn how to buy, sell, and trade Petro.

Chile

Two cryptocurrency exchanges requested the Chilean Association of Banks to clarify regulations after the firms’ corporate accounts were rejected by multiple banks in the country.

Chilean banks have been closing similar accounts “out of fear or lack of information” on cryptocurrencies. The exchanges report they are registered with various Chilean agencies and comply with anti money laundering and anti-terrorist funding laws.

A banking executive noted the closures were not out of bias toward cryptocurrency, but reflect a wider banking policy to deny services to accounts that don’t meet the banks financial expectations.

As been reported on April 25, Chile’s anti-monopoly court ordered state bank Banco del Estado de Chile and Itau Corpbanca to re-open Buda’s accounts while the exchange’s lawsuit continues against 10 banks, including the aforementioned two.

Chile’s energy regulatory agency announced a project using the Ethereum Blockchain network to authenticate information in the nation’s energy grid. The agency’s executive secretary noted the transition to Blockchain was for concern of data security.

The project will provide public information on developments and will be instrumental in gaining public trust and understanding of Blockchain tech in South America.

Bolivia

The Bolivian Central Bank outright banned any currency or coins that were not either issued by or regulated through the government as early as in 2014. The bank specifically mentioned Bitcoin, Quark, Peercoin, Namecoin, Primecoin and Feathercoin in the announcement but the statement seemed to include all cryptocurrencies.

In the officials opinion, “It is illegal to use any kind of currency that is not issued and controlled by a government or an authorized entity.” The bank also said that citizens of Bolivia were prohibited from denominating prices in any non-approved currencies.

Ecuador

Ecuadorian government has had a firm negative stance on cryptocurrency over the last four years. On February 16, 2018 the national Central Bank issued a statement which informed the public that Bitcoin is not a means of payment authorized for its use in the country:

The financial transactions carried out through Bitcoin are not controlled, supervised or regulated by any entity in Ecuador, which is why its use represents a financial risk for those who use it. It is important to point out that the purchase and sale of cryptocurrencies - like Bitcoin - through the Internet is not prohibited; However, it is emphasized that Bitcoin is not a legal currency and is not authorized as a means of payment of goods and services in Ecuador, as established in Article 94 of the Monetary and Financial Organic Code.

However, Ecuador has been officially developing its own national cryptocurrency system, the Sistema de Dinero Electrónico, since 2014. The Dinero Electrónico tokens are backed by the assets of Ecuador’s central bank, Banco Central del Ecuador, and pegged one-to-one to the US dollar, which is Ecuador’s national currency.

The first and the second volumes of our Banks and Crypto Evaluation were about Asia and Europe respectively.