While there are not quite yet official direct regulations around cryptocurrency, there are some indirect regulations which apply, some of which are governed by FINTRAC. We encourage every cryptocurrency user to stay ahead of the game by ensuring their exchange is registered with FINTRAC.
RELATIONSHIP TO FIAT.
A huge problem in cryptocurrency is its relationship with fiat. Governments regulate their own currencies and banks and financial institutions have a set of rules to follow to be able to do business with that currency. A major concern of government, and therefore a bank, is the possible flow of funding to criminal activities. As such, it is easy to understand how governments and banks become wary when their influence over the use of currency wanes.
The same influence banks held over fiat currency led to perceived abuse and a resulting loss of trust by the public. This sparked the development of the ‘trustless’ system, namely cryptocurrency. Circumventing traditional institutions and payment methods may be fine in theory, however, in practical terms citizens need to abide by the laws of the country they live in and, like it or not, this means an inherited duty to pay taxes and protect the public interest. So why would any risk-averse bank be amenable to advocating for the use of interchanging fiat into cryptocurrency when they have no idea who they are supporting?
KEEPING TRACK OF THE SHADY PLAYERS.
Canada’s financial intelligence unit, FINTRAC — the Financial Transactions and Reports Analysis Centre of Canada is involved in monitoring the flow of currency through Canada. While this may be perceived as annoying and perhaps alarming to our libertarian friends, it is a necessary evil to combat what could add up to larger evils.
“The actionable financial intelligence that we are able to generate begins with the efforts of Canadian businesses…They are on the front lines of Canada’s legitimate economy and are indispensable to our work and our ability to support our partners’ money laundering and terrorism financing investigations.”
Gérald Cossette Director, FINTRAC 2017 Annual Report
FINTRAC receives information from regulated entities such as NDAX on:
- Suspicious transactions;
- Suspected terrorist property;
- Large cash transactions;
- Outgoing or incoming International Electronic Funds Transfer over $10,000 CAD within a 24 hour period; and
- Cross border currency reporting.
All banks and financial institutions handling money need to adhere to these rules as well and according to the Centre’s Annual Report, in 2017, FINTRAC provided 1,655 disclosures of actionable financial intelligence to police, law enforcement and national security partners to assist their investigations of money laundering, terrorism financing and other threats to Canada’s security. The year previous, they provided over 483 disclosures related to the financing of terrorism.
In a recent Reddit thread, there was some concern about how FINTRAC actually helps the cryptocurrency market. While there may be some debate as to the effectiveness of FINTRAC, there are a few reasons NDAX felt it was important to do things ‘by the book’ and obtain a Money Service Business registration with FINTRAC in anticipation of upcoming regulation.
To make cryptocurrency more accessible to the public and broach a gap between cryptocurrency and the mainstream, NDAX elected to put into place the highest standards of the financial industry. Because of this, we were rewarded with the support of a secure Canadian based financial institution to provide banking services to cryptocurrency users— a major benefit to our clients.
By using a Canadian-based financial institution funds stay in Canada and are not sent to offshore jurisdictions. If you are not using Canadian banking your funds (and crypto) may be stuck in systems that take months to withdraw because it has been sent offshore and you have to pay a premium to get it out.
Fee reduction is another benefit. If an exchange is holding your money offshore and potentially getting around Canadian AML requirements it is vastly more expensive for them to do so in another jurisdiction. These costs are passed onto the user with 2–5% deposit fees and percentage-based withdrawal fees rather than a simple and certain flat fee.
Because we registered with FINTRAC, it also allows us to boast that our client’s fiat funds are 100% guaranteed. We secured a segregated bank account keeping these funds legally separate from ours. This is more protection than any non-FINTRAC registered exchange, or even many FINTRAC registered ones for that matter.
HOW THE WEST WAS WON.
Those who are opposed to exchanges registering with FINTRAC often profess themselves to be disciples of Satoshi’s true vision in the libertarian and anarchistic meaning. But these myopic arguments are distorted and self-interested. The roots of cryptocurrency may have been bred to be pro-privacy and anti-government, but the so-called prophets pushing this shortsighted view of cryptocurrency will ultimately hurt the industry by shrinking access to the general public if framework to protect the public good can’t be put into place. The agenda of these apostles seems clear: to claim a monopoly over the distribution, keeping themselves fat on the large percentages they are taking from users. Short term gain over long term sustainability.
While FINTRAC may not be the Better Business Bureau, aligning with beliefs of transparency and lawfulness gives cryptocurrency users a better experience. A user may not be able to lodge a consumer complaint with FINTRAC but the Centre knows exactly who we are, where we do business and that we are a corporate entity registered in accordance with the laws of the province of Alberta. This alone provides Canadian cryptocurrency users with much more information than exchanges choosing to not go the same route.
It is our belief that choosing to register as a money service business with FINTRAC is not just good business for NDAX, it results in a much more much more transparent, simple, cost effective and client-centric experience for the cryptocurrency user.