The Government of Jersey is planning to regulate virtual currencies such as Bitcoin formally for the first time. Its main concern - but not its only one - is money-laundering control.

The draft Proceeds of Crime (Miscellaneous Amendments)(Jersey) Regulations are designed to amend the Proceeds of Crime (Jersey) Law 1999, principally to add the activities of carrying out the business of virtual currency exchange to the already bulging list of covered activity. This introduces regulation to the foggy borderlands between virtual and 'fiat' currency.

The draft regulations propose to extend the principles of the Money Laundering (Jersey) Order 2008 to anybody who acts as a “virtual currency exchanger” and seek to amend the Proceeds of Crime (Jersey) Law to move virtual currency into the “high value dealers” regime which applies to anyone who is, by way of business, willing to receive in respect of any transaction a payment of at least €15,000 in the equivalent value to virtual currency.

The draft contains a threshold test. Under it, the Jersey Financial Services Commission will not supervise a virtual currency exchange business fully (or extract fees from it) if it operates under the threshold (currently set at a turnover of £150,000 in a calendar year) as long as that business tells the JFSC that it is carrying out this activity.

The sandbox of invention

The cat-fanciers at the JFSC, like their counterparts at the Monetary Authority of Singapore and the UK's Financial Conduct Authority, have taken to bandying around the word 'sandbox' when discussing IT start-ups. Here they seem to be saying that the unregulated space below the threshold is a 'sandbox' in itself, using the term to refer to a place where "innovation and creativity [can] flourish without unnecessary red tape...this is designed to support start-up businesses." The connection between cat-litter and innovation is not readily apparent and the draft regulation does not enlighten the reader further.

The world of virtual currencies is a fast-moving one and the Jersey Government is at pains to tell the regulated community that this paper represents a mere step on the way to a more mature policy and should be viewed as a starting-point for the regulation of virtual currency. The European Union's recent initiative to amend its fourth money-laundering directive to cover the regulation of virtual currency is just one of a number of recent developments that it wishes to take into account, perhaps in future regulations or perhaps in a last-minute amendment to this one.

Minor amendments

The draft regulations also propose that the AML laws of Jersey should not describe businesses that manage immovable property in Jersey as 'financial services businesses,' a wide category of business to which the Proceeds of Crime Law 1999 applies under pain of criminal penalty.

They also propose to amend Schedule 2 Proceeds of Crime (Jersey) Law to include a new category of "those who act otherwise than by way of business (which is already covered by Regulation of Trust and Company Service Providers), as trustee of an express trust." This seems a trifle unnecessary because, under the customary law of Jersey concerning trusts and the provisions of the Trusts (Jersey) Law 1984, it is clear that every trustee is already obliged to identify the beneficiaries of the trust. The real reason for this clause is to make Jersey follow the revamped wording of the Financial Action Task Force's '40 recommendations' of 2012 more closely - a token of how most Western countries are now marching in lock-step with the wishes of international standard-setters (such as the FATF, the Organisation for Economic Co-operation and Development, the International Organisation of Securities Commissions, the International Association of Insurance Supervisors, the Group of 20 industrialised nations, the G8 etc.) to an unprecedented degree. The States of Jersey will, in due course, decide when this regulation comes into force.