INTERNATIONAL COORDINATION AND HARMONIZATION FOR DIGITAL CURRENCY
Finally, the international dimension ofany cryptocurrency regulation
warrants attention. Owing to the deterritorialized and often international
nature ofcryptocurrency transactions, effective regulation will require a
significant amount ofcoordination and harmonization among regulators and
jurisdictions.
Indeed, the Internet and cryptocurrency transactions are by nature borderless, and this sits uncomfortably with traditional regulatory boundaries ofjurisdiction and sovereignty. This is particularly so in the case ofcybercrime and online misdemeanors: they can originate in one jurisdiction, but have deleterious effects in another, and sometimes on nationals of yet another jurisdiction.
Thus, no single jurisdiction can guarantee a protected cybersecurity environment on its own: crimes in one territory can go without detection or punishment because they cannot be effectively monitored or enforced against persons outside the jurisdiction. Coordination and cooperation among regulators and law enforcement authorities to address such issues are thus essential. The importance ofsuch cooperation is underscored by the recent failure ofMt. Gox, where reportedly more than US $480 million of customers’ cryptocurrency had disappeared as of February 2014, allegedly due to large-scale hacker attacks, which have to this date gone unpunished.
However, international cooperation on cybersecurity issues can be as complicated as it is necessary, particularly as different countries can take very different approaches in their national laws, policies, or attitudes on issues of cybercrime and cybersecurity. Some countries see vital state and national security interests as implicit in such cybersecurity issues and have regulatory or legal structures that allow extensive governmental intrusion into the sender and recipient details ofevery single transmission and the contents ofsuch transmissions. Other countries see that proper Internet governance requires balancing security concerns against certain constitutionally protected freedoms and accordingly have legal structures that emphasize privacy and data protection (Satola and Judy, 2011). These differences are fundamental and may be difficult to reconcile in specific cases, as the recent WikiLeaks episode illustrates.
In Singapore, regulators have pursued more partnerships with other regulators on the cybersecurity front in recent years, including through the signing ofinformation sharing and collaborative agreements with other regulators in jurisdictions such as Japan and South Korea. Commentators believe that international cooperation will continue to scale upward with the opening of the INTERPOL Global Complex for Innovation in Singapore in 2014 and the deepening ofcooperative ties with the European Cybercrime Centre (Chang, 2013).
Effective cryptocurrency regulation will require further and more detailed cooperation arrangements with foreign regulators and particularly on cryptocurrency- and Bitcoin-specific cybersecurity issues. This will go some way to creating a stable regulatory environment that will boost consumer confidence and support the cryptocurrency industry.
Aside from cybersecurity issues, many cryptocurrency regulations in foreign jurisdictions, such as in the United States or Canada, are expressed to have extraterritorial effect, and this subjects cryptocurrency firms in Singapore to a “double deontology” risk, where they may be subject to potentially conflicting and irreconcilable rules at the same time. For instance, Canada’s recently released virtual currency regulations, issued by the Financial Transactions and Reports Analysis Centre of Canada, are stated to have extraterritorial effect and capture foreign firms that either have a place ofbusiness in Canada or are offering services to Canadians. Thus, a cryptocurrency firm operating in Singapore may have to comply not only with Singapore regulations but also with Canadian cryptocurrency regulations, to the extent that it has a Canadian office or markets to Canadian customers. In a case ofconflict, the firm may have no choice but to comply with the stricter standard, even though its competitors may not be similarly constrained; worse still, in cases of more fundamental conflict, complying with either standard may put a firm in breach of the other standard it is subject to.
As such, the extraterritorial reach of foreign regulations could impose particularly onerous compliance obligations on cryptocurrency firms and have a significant impact on their costs and competitiveness. This also adds to the existing regulatory uncertainty, especially when the applicable laws to any particular transaction may be different and potentially in conflict. Given the inherently cross-border nature ofmost cryptocurrency business models, this creates very real risks for firms operating in this space.
A facilitative regulatory model should accommodate the decentralized, diverse, and international nature ofthe cryptocurrency markets. This requires that cross-border harmonization ofregulations in Singapore and other leading jurisdictions be prioritized and pursued to the extent possible, in order to minimize regulatory uncertainty, reduce unnecessary costs, and eliminate opportunities for rent-seeking and regulatory arbitrage.
Indeed, the Internet and cryptocurrency transactions are by nature borderless, and this sits uncomfortably with traditional regulatory boundaries ofjurisdiction and sovereignty. This is particularly so in the case ofcybercrime and online misdemeanors: they can originate in one jurisdiction, but have deleterious effects in another, and sometimes on nationals of yet another jurisdiction.
Thus, no single jurisdiction can guarantee a protected cybersecurity environment on its own: crimes in one territory can go without detection or punishment because they cannot be effectively monitored or enforced against persons outside the jurisdiction. Coordination and cooperation among regulators and law enforcement authorities to address such issues are thus essential. The importance ofsuch cooperation is underscored by the recent failure ofMt. Gox, where reportedly more than US $480 million of customers’ cryptocurrency had disappeared as of February 2014, allegedly due to large-scale hacker attacks, which have to this date gone unpunished.
However, international cooperation on cybersecurity issues can be as complicated as it is necessary, particularly as different countries can take very different approaches in their national laws, policies, or attitudes on issues of cybercrime and cybersecurity. Some countries see vital state and national security interests as implicit in such cybersecurity issues and have regulatory or legal structures that allow extensive governmental intrusion into the sender and recipient details ofevery single transmission and the contents ofsuch transmissions. Other countries see that proper Internet governance requires balancing security concerns against certain constitutionally protected freedoms and accordingly have legal structures that emphasize privacy and data protection (Satola and Judy, 2011). These differences are fundamental and may be difficult to reconcile in specific cases, as the recent WikiLeaks episode illustrates.
In Singapore, regulators have pursued more partnerships with other regulators on the cybersecurity front in recent years, including through the signing ofinformation sharing and collaborative agreements with other regulators in jurisdictions such as Japan and South Korea. Commentators believe that international cooperation will continue to scale upward with the opening of the INTERPOL Global Complex for Innovation in Singapore in 2014 and the deepening ofcooperative ties with the European Cybercrime Centre (Chang, 2013).
Effective cryptocurrency regulation will require further and more detailed cooperation arrangements with foreign regulators and particularly on cryptocurrency- and Bitcoin-specific cybersecurity issues. This will go some way to creating a stable regulatory environment that will boost consumer confidence and support the cryptocurrency industry.
Aside from cybersecurity issues, many cryptocurrency regulations in foreign jurisdictions, such as in the United States or Canada, are expressed to have extraterritorial effect, and this subjects cryptocurrency firms in Singapore to a “double deontology” risk, where they may be subject to potentially conflicting and irreconcilable rules at the same time. For instance, Canada’s recently released virtual currency regulations, issued by the Financial Transactions and Reports Analysis Centre of Canada, are stated to have extraterritorial effect and capture foreign firms that either have a place ofbusiness in Canada or are offering services to Canadians. Thus, a cryptocurrency firm operating in Singapore may have to comply not only with Singapore regulations but also with Canadian cryptocurrency regulations, to the extent that it has a Canadian office or markets to Canadian customers. In a case ofconflict, the firm may have no choice but to comply with the stricter standard, even though its competitors may not be similarly constrained; worse still, in cases of more fundamental conflict, complying with either standard may put a firm in breach of the other standard it is subject to.
As such, the extraterritorial reach of foreign regulations could impose particularly onerous compliance obligations on cryptocurrency firms and have a significant impact on their costs and competitiveness. This also adds to the existing regulatory uncertainty, especially when the applicable laws to any particular transaction may be different and potentially in conflict. Given the inherently cross-border nature ofmost cryptocurrency business models, this creates very real risks for firms operating in this space.
A facilitative regulatory model should accommodate the decentralized, diverse, and international nature ofthe cryptocurrency markets. This requires that cross-border harmonization ofregulations in Singapore and other leading jurisdictions be prioritized and pursued to the extent possible, in order to minimize regulatory uncertainty, reduce unnecessary costs, and eliminate opportunities for rent-seeking and regulatory arbitrage.
Comments
Post a Comment
Write your receipt if you have any questions about the subject