Regulatory challenges of software-based disintermediation of financial services
The CSBS, the Conference of State Bank Supervisors has very recently proposed a framework for future regulation regarding the provision of…
Regulatory challenges regarding financial services for virtual currencies
The Conference of State Bank Supervisors (CSBS), a professional regulatory association whose voting members and Board of Directors are exclusively state financial regulators, has recently proposed a framework for future regulation regarding the provision of financial services in the virtual currency space.
In order to create appropriate legislation the following question needs answering: what is a financial services provider in the realm of virtual currencies from a regulatory perspective?
The CSBS specifies four critical elements:
(1) The activity matters, not the label.
(2) Suitable activities are transmitting, exchanging, and holding value.[1]
(3) Those activities have to be undertaken on behalf of others.
(4) The activity requires the service provider to assume a position of trust vis-à-vis his customers.
The most interesting element is (4), because it is this aspect where the fundamental difference between virtual currencies and the assets ordinarily managed by traditional financial service providers lies.
The difference links back to my musings on smart contracts and the two different systems of enforcement that exist.
A false sense of paternalism
[1] Value as understood in financial terms. The CSBS framework recognizes the existence of non-financial applications of virtual currencies as tokens of a fundamentally non-economic kind: “the policy statement is not intended to cover activities that are not financial in nature but utilize technologies similar to those used by digital currency”.
Regarding the list of relevant activities, the ”policy statement is not intended to cover the merchants and consumers who use virtual currencies solely for the purchase or sale of goods or services.“
Exported from Medium on January 3, 2025.