Cryptocurrencies an ‘unstoppable phenomenon’, – Gramegna
Luxembourg’s finance minister shares views on regulation, taxation of virtual currencies
BitFlyer – the first bitcoin exchange to be regulated in the EU, Japan and the US – was granted a payment institution license in Luxembourg on 8 January. We spoke with finance minister Pierre Gramegna at the ceremony marking bitFlyer’s official launch in the Grand Duchy.
Q: Mr. Gramegna, have you invested in virtual currencies yet?
A: No, I don’t have the time. But not doing it doesn’t mean I do not believe in it.
Q: How do you justify Luxembourg’s approach to cryptocurrencies when so many other European authorities have recently expressed doubts?
A: We are not the only ones in Europe to grant licenses. We believe, along with others, that this is an unstoppable phenomenon that brings added value and effective services to the consumer. This should, therefore, develop.
Q: Are you talking about the virtual currencies or blockchain, the open registry of transactions on which it is based?
A: I am talking about both because they are connected. The blockchain offers traceability. The two elements are, in one way, inseparable. We have developed a framework in Luxembourg for several years now that is both simple and complete. We place virtual currencies under the legal regime of payment companies.
People who do not know about this say ‘Luxembourg welcomes everyone, although there is no legal framework’. This is not the case. The legal texts designed for payment services also apply to virtual currencies.
In addition, bitFlyer is recognised not only as the leader but also the most serious operator because they commit to anti-money laundering obligations. Knowing the rules, they said they could and would do it. We are very happy to welcome them under these conditions.
Q: What is the taxation model applied to virtual currencies?
A: This is a new subject. For now, it’s relatively simple. Payments in virtual currencies, as long as they occur between them, do not enter the field of taxation. From the moment we convert to traditional currencies, we enter the normal world. A capital gain realised on a transaction of virtual currency must be declared and taxed … absolutely. The capital gain must be declared in the country of residence of its beneficiary.
Q: On Tuesday, you are set to attend the Paris Fintech Forum, where you will participate in a debate with your French, Belgian and Lithunian counterparts. What will your message be?
A: My message will be that Europe is a little ahead of the global regulation on payments, in the same way as we are frontrunners on the regulation of investment funds.
We had great difficulties to agree on how to manage funds 30 years ago. It took years. Same for the directive on payment services (PSD1 and PSD2), with the second version entering into force earlier this year. It was not easy.
But, once we achieved that, we had a big single market that had the same rules. Having this is very precious. It’s one of the proofs that a united Europe is more succesful than one where every member state is for itself.
Q: Can the European regulation on virtual currencies take the Grand Duchy to the same level as it did with the collective investment schemes (UCITS)?
A: This is the first time I’ve made this parallel. Yes, it’s a bit the same idea, perhaps. It’s cross-border. It’s easy to trade. It’s cut into small pieces. It’s fast and effective.
Q: Are virtual currencies safe?
A: That’s the question. There is fraud in everything people do. The Luxembourg Financial Intelligence Unit (CRF) has received a number of suspicious reports in connection with Bitstamp – a bitcoin exchange based in Luxembourg – since its registration. Is it a good sign?
In the case of bitFlyer, they have the highest standards in the sector. We are very happy. But, of course, we will monitor all of its activities.
There will be a lot of actors who will do this properly, and some who will try to cheat. It’s part of human activity, and you have to be vigilant.