As governments around the world impose sanctions on Russia following their invasion of Ukraine, some are raising concerns that Russia and the targeted oligarchs may seek to circumvent sanctions through the use of cryptocurrency platforms and digital currencies which remain relatively anonymous and unregulated.
Just recently it was reported that US President Biden plans to sign an executive order on cryptocurrencies later this week. While the timing of the executive order may suggest that this is an extension of sanctions against Russia, the reality is that governments across the world have been grappling with how to manage the rise of digital currencies, crypto-assets and crypto platforms for years. The proliferation of cryptocurrencies, from Bitcoin to Dogecoin, make these assets more readily available and popular despite being largely unregulated.
Biden’s executive order will reportedly do the following:
- Ask that financial governmental agencies provide reports on the future of money and the role of crypto including the legal and economic result of creating a central bank digital currency and the impact on consumers
- Require financial governing agencies to develop regulations and policies that deal with digital currencies
- Require the Federal Reserve to explore a new digital currency
- Deal with ransomware and cyber-crime
- Ensure that laws align with other countries with similar economies
In Canada, like other countries, we’ve been grappling with cryptocurrencies for years through our securities regulators and SROs. The Canadian Securities Administrators (CSA), Ontario Securities Commission (OSC) and Investment Industry Regulatory Organization of Canada (IIROC) mostly adapted existing securities laws and regulations requiring crypto-asset trading platforms to comply. Since around 2016, Canadian securities regulators have issued a series of Staff Notices and Press Releases warning consumers to use caution when investing with crypto-asset trading platforms. Canadian securities regulators highlight some concerns like crypto assets not being adequately safeguarded, their heightened risk, volatility, and lack of transparency. However, generally, securities regulator comments are restricted to crypto-assets that are considered securities or derivatives (see CSA Staff Notice 21-327).
As for digital currencies, in February 2020, in the Bank of Canada explored whether they could issue a Central Bank Digital Currency. Some reasons in favour of issuing a Canadian-specific digital currency included the threat to Canada’s monetary sovereignty. They argue, “Canada’s monetary sovereignty would be threatened if a private digital currency not denominated in Canadian dollars were to play a major role in payments in Canada” (link to report here). The Bank of Canada argues that the widespread use of digital currency could undermine the Central bank’s ability to achieve price and financial stability.
While Biden’s executive order may be timed well with the conflict overseas, interest in regulating cryptocurrencies have existed for years and the concerns expressed by the Bank of Canada in early 2020 are similar to those already being considered by the United States. While cryptocurrencies remain unregulated and many aspects not subject to law, it seems that Biden’s executive order may seek to fill those legislative gaps.