This article first appeared in Connect magazine
Virtual currencies divide opinion. You can see them 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 in 2016. What you can't deny is that they're booming,
and heading into the mainstream.
In the first half of this year, around $4.25 billion in bitcoin
was traded in Japan – that's up around 50 times on 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 that, and how to seize the
opportunity, is one that falls not just on lawyers, tech firms and
service providers, but also on governments and regulators, who have
to strike a fine and careful balance between effective oversight
and control, and allowing innovation and experimentation in this
fast-developing new area to go ahead.
The signs are that Jersey has achieved that balance.
When politicians approved the little-remarked 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 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 taking place in the Island. And by
setting a turnover threshold of £150,000 (the "economic
threshold" test) before they have to be subject to active
supervision under the Proceeds of Crime (Supervisory Bodies)
(Jersey) Law 2008 and be liable for an annual fee, the government
and regulator have created an environment in which testing and
development of virtual currency applications can flourish.
That testing opens up all sorts of possibilities: virtual
currencies can be transferred across borders almost instantly
without bank charges or FX exchange commission; they are much more
difficult to steal because the records of who owns what isn't
held by one bank, but in lots of places at once; and their value
isn't affected by inflation in the same way as state
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 fintech development where innovators
can directly reduce the cost and time to get a platform to testing
and running phase.
The £150,000 turnover threshold creates a fair balance
between giving innovators the opportunity to explore the
opportunities created by virtual currencies, while 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 is heading into the mainstream. The Jersey regulatory
approach places the Island in a strong position to incubate, grow
and develop its fintech business community.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).