Consumer Financial Protection Bureau to assume a larger role in virtual currency initiative.
Article by Richard L.
Fischer, Obrea O.
Poindexter, Jeremy Mandell
and James Nguyen, Morrison &
Foerster LLP
On June 26, 2014, the U.S. Government
Accountability Office ("GAO") released a report, entitled "Virtual Currencies: Emerging
Regulatory, Law Enforcement, and Consumer Protection Challenges."
The report, delivered earlier to the U.S. Senate Committee on Homeland Security
and Government Affairs, is the GAO's second report on virtual currencies. In
2013, the GAO released a report
on the tax implications of virtual currencies, which led to guidance from the
Internal Revenue Service ("IRS") concluding that virtual currencies
should be treated by the IRS as property for tax purposes.
The GAO's second report examines the
roles, responsibilities and challenges federal agencies face in connection with
the regulation of virtual currencies. The report names the Financial Crimes
Enforcement Network, the prudential banking regulators, the Securities and
Exchange Commission, the Consumer Financial Protection Bureau
("CFPB"), the Department of Justice and the Department of Homeland
Security as the federal agencies responsible for overseeing both the legitimate
and illegitimate uses of virtual currencies. According to the GAO report, these
agencies are responsible for addressing the regulatory, law enforcement, and
consumer protection challenges presented by virtual currencies.
The challenges discussed in the GAO
report include:
•
the high degree of anonymity provided
by virtual currencies;
•
the cross-jurisdictional nature
inherent in virtual currency schemes; and
•
the consumer and investor protection
risks posed by virtual currency activities.
Recommendation for More CFPB
Involvement on Virtual Currencies
The GAO report catalogs and examines
the actions federal agencies have taken in response to the challenges presented
by virtual currencies, including the establishment of interagency working
groups on virtual currencies. The report finds that these groups have not, thus
far, emphasized consumer protection issues due to the CFPB's lack of
participation in efforts to inform consumers about the potential risks
associated with virtual currencies, such as the disruption and subsequent
bankruptcy of Mt. Gox, a bitcoin exchange. As a result, the GAO recommended
that the CFPB identify interagency working groups that would benefit from the
CFPB's participation, and coordinate with other federal agencies to determine
the groups in which the CFPB should participate.
In a letter responding to the GAO
report, the CFPB identified its involvement in numerous informal discussions
and its participation in various interagency working groups on virtual
currencies, but nevertheless concluded that it concurs with the GAO's
recommendation. Specifically, the CFPB stated that continued federal regulatory
efforts "will benefit from a collaborative response" to concerns
arising from virtual currencies, and said that it will increase its involvement
in interagency working groups "as they engage on specific issues relating
to consumer protection." We will continue to follow developments related
to virtual currencies and the CFPB's efforts in this regard.
Because of the generality of this
update, the information provided herein may not be applicable in all situations
and should not be acted upon without specific legal advice based on particular
situations.
Last Updated: July 16 2014
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