Without Unified, Federal Regulations for Digital Currencies, the U.S. Risks Falling Behind
The divided regulatory policies and frameworks on digital currencies, including Bitcoin, in the United States have created an impractical ecosystem for startups to operate in.
The country’s state-by-state regulations for money transmission licensing has led to an unclear regulatory framework for digital currencies, with some states, including North Carolina, New Jersey and California, establishing regulations in favor of digital currency startups and businesses, while others, such as New York and Connecticut, require startups to obtain expensive licenses to operate as legal entities.
This rules-based approach from government agencies has made it virtually impossible for digital currency startups to be compliant with each state’s regulations, resulting in the termination of services in some states.
In response to the Office of the Comptroller of the Currency’s request for comment, Coin Center, a Washington-based, non-profit cryptocurrency research center asked for the development of a federal charter that would create a unified lightweight, limited purpose regulatory framework for fintech and digital currencies in the United States.
“How can [we] facilitate responsible innovation by institutions of all sizes?” the OCC asked in its white paper.
Coin Center suggests that a simple answer and approach to this core issue of innovation is to enable fintech and virtual currency startups to obtain a passport to offer cross-state services throughout the nation, without dealing with state-independent regulations on money transmission.
The elimination of barriers between states will additionally open fintech startups to numerous payment and financial systems which they can use to obtain banking services. Reflecting on the concept of open network introduced by the OCC in its white paper, it is only logical to offer an open regulatory environment for fintech startups that are focused on bringing innovative and disruptive financial services to the country.
The OCC, an independent bureau within the Treasury Department, holds the ability to regulate and supervise all national banks and the federal branches of foreign banks in the United States. Thus, the OCC is one of the few government organizations that possesses authority over independent states and their regulations on money transmission.
If the OCC is as committed to innovation and development of open network technology as it says in its white paper, it should maximize its resources to lead each state in creating a viable ecosystem for fintech companies to operate in, similar to the regulatory environment of the United Kingdom.
The U.K. and its regulatory bodies have persistently opted for favorable policies for fintech and digital currency startups since early 2015, after realizing the market for and importance of fintech to the economy of the nation.
Its government took an alternative approach, establishing different regulations for businesses in the fintech industry in order to enable the fintech sector to operate and prosper.
“Our interviews suggested the U.K. government should consider additional actions to support the Fintech community, particularly in the areas of improving access to talent; encouraging closer collaboration and information sharing between established financial services businesses and Emergent Fintech; and actively championing the sector,” states an official report commissioned by U.K. Trade and Investment.
Apart from local regulatory policies, the U.K. government and its agencies including the Financial Conduct Authority (FCA) went as far as securing partnerships with other global organizations in South Korea, Singapore and Hong Kong to improve its fintech market and position itself as the leading nation in financial technologies.
Singapore and South Korea, for instance, have partnered with the U.K. Financial Conduct Authority to create a bridge between Singaporean and South Korean fintech startups with the British. The partnership established a friendly ecosystem for fintech startups to discuss emerging technologies and the latest trends in the market. With this program, and favorable regulations from the federal government, Singapore and South Korea have quickly escalated as the leaders of the Asian fintech and blockchain industries.
Furthermore, European countries such as Switzerland and Germany also have begun to develop friendly regulations for fintech startups, recognizing their significant impact to their economies. As a result, German fintech companies received more venture capital funding than startups in London and the United States, securing more than $1.6 billion in investment.
The Swiss Federal Tax Administration’s announcement in mid-2015 that it was eliminating value-added tax (VAT) for Bitcoin spurred interest among investors and venture capital firms, enabling fintech startups to secure large sums of funding from local investors.
Considering the potential of fintech and its rapid growth in the American and global markets, the United States and the OCC should follow the lead of countries such as the U.K. and encourage the government to establish regulatory policies that won’t leave the fintech industry lagging behind their global competitors.