Virtual currencies – including Bitcoin

The Financial Supervision Commission (“the Commission”) is aware of increasing interest from businesses looking to become involved in the rapidly developing market for virtual currencies such as Bitcoin. Recognising this trend, the Isle of Man Government has already stated that it welcomes those who can meet the necessary standards, while also preserving the Island’s good reputation as a financial centre.

Consumers need to be aware that virtual currency businesses will not be subject to a conduct of business or prudential regime by the Commission unless they also carry on a regulated activity under the Financial Services Act 2008 (e.g. money transmission services). This means that there is no such protection for consumers in the virtual currency market. It is not considered appropriate to introduce a regime until the market is more developed and there is an international consensus on how it could be framed.

In order to ensure that the Island’s international reputation is maintained, it has been decided that certain activities relating to virtual currencies should be brought within the Anti-Money Laundering/Countering the Financing of Terrorism (“AML/CFT”) framework. As a result, certain amendments are currently being planned to Schedule 4 to the Proceeds of Crime Act 2008 which would apply the Island’s AML/CFT legislation to those involved in the virtual currencies market. In addition, the Commission is in the process of drafting of a Bill (the Designated Businesses (Registration and Oversight) Bill) which will provide the Commission with the ability to oversee how virtual currency and other designated businesses comply with the Island’s AML/CFT legislation.

In the meantime the Commission’s view is that this can be a high risk area for participants who do not understand the risks involved, and they need to be aware that there is no Government protection in place for them.