10 July 2014

The Assistant Chief Minister with responsibility for financial services, Senator Philip Ozouf, has commented on the announcement by a Jersey-based investment management company that it has received approval to launch a Jersey-regulated Bitcoin investment fund.

Senator Ozouf's statement

Senator Ozouf said "This is believed to be the first regulated Bitcoin fund in operation and Jersey is pleased to be paving the way. Fintech, which broadly defines the emerging digital industry in finance, is a sector that I believe holds significant opportunities for Jersey. In April this year, when I presented the Government’s policy framework for the future of our financial services industry, I made it clear that innovation will be central to Jersey’s future prosperity. I also emphasised that Government will offer its full support for innovative measures undertaken by industry and the regulator.

“I therefore welcome the decision of the Jersey Financial Services Commission to approve the launch of the Island’s first regulated Bitcoin fund. We are working closely with the Commission, industry and Digital Jersey to help develop the Island as a natural hub for fintech business. We are committed to maximising the benefits and opportunities of cryptocurrencies like Bitcoin in a well-regulated environment.”

Cryptocurrency overview

Cryptocurrencies are fundamentally a software code or chain of digital signatures that define units of value. No transfer of any physical money or digital file takes place at the point of transaction as with traditional core currency transactions.

The most notable difference between crypto currencies and core currencies is that no group or individual may accelerate, stunt or in any other way significantly moderate (or abuse) the production of money. Most crypto currencies are designed to gradually introduce new units of currency, placing an ultimate cap on the total amount of currency that will ever be in circulation. This is done both to mimic the scarcity (and value) of precious metals and to avoid hyperinflation.

One of the commonly known cryptocurrencies is ‘Bitcoin’. Bitcoins are created as a reward for payment processing work in which users offer their computing power to verify and record payments into the public ledger. Called mining, individuals or companies engage in this activity in exchange for transaction fees and newly created Bitcoins. Bitcoins are now actively obtained in exchange for core money, products, and services.

The popularity of cryptocurrencies, particularly Bitcoin, has increased significantly as a tool of trade and more recently as an asset class for expert investors.

Regulation

Jersey has consistently taken a proactive approach in advancing the worldwide fight against money laundering and financing of terrorism. In the area of cryptocurrencies, this approach will not change. Jersey is committed to introducing an appropriate and proportionate anti-money laundering regime in this area.

Given that the use of cryptocurrencies has evolved at such a rapid pace, and that the user and business acceptance is sharply growing, the Government and the Jersey Financial Services Commission are of the view that an in-depth analysis of the risks posed by crypto-currency needs to be carried out before an appropriate and proportionate anti-money laundering regime can be introduced.

The analysis of the risks associated with crypto-currency is underway and it is anticipated that the Financial Crime Strategy Group, who make recommendations to the Government on financial crime matters, will be in a position to advise Ministers by the end of 2014.

Tax implications

Any business or individual receiving an income from any activity involving Bitcoin and other similar cryptocurrencies will need to consider the income tax and GST implications.

In general terms, the Comptroller of Taxes has issued the following guidance

the profits and losses of a business entering into transactions involving cryptocurrencies would be reflected in the accounts and would be taxable under normal Jersey income tax provisions relating to foreign exchange.

with regard to GST, the value of the supply of goods or services on which GST is due will be the sterling value of the cryptocurrency at the point the transaction takes place.

Local cryptocurrency use

The use of cryptocurrencies locally is gathering momentum with a growing number of retailers currently accepting payment in Bitcoin. As such, Trading Standards have published new guidance for retailers accepting cryptocurrencies for consumer transactions.