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How Payment Services Act Operates

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The first installment is an overview of what are the problems facing the crypto world and the deficiencies in its monitoring and regulation. We know that although the concept of decentralised financial system is tempting, the need for regulation and sanction cannot be dispensed with. The incident of Mt. Gox is almost expected especially when the preventive law is lax or of no existence.

The first victim would usually be the states that refuses to recognise the use of cryptocurrencies. I believe that most of us are well aware that it is a primitive argument to say if cryptocurrency should be implemented or not. It is here and it is on foot. Hence, the only way to ensure that this system does not become a vehicle of fraud is to exercise some degree of control over it.

The Japanese in the aftermath of Mt Gox introduced Payment Services Act and coined a fairly new term for crypto, it is given 'financial value'. What we normally see is the refusal to admit crytocurrency as a currency but consider it as an asset. Here in the Payment Services Act, the Japanese went one step further and even remove the definition of 'asset denominated in currency'.

What is Asset Denominated in Currency

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(Understanding the different terminologies used)

This is a term just falling short of calling it a currency. In currencies, every state will adopt an official currency and that currency will be used as a legal tender. For countries that does not have their own currency, they can adopt a foreign currency as their legal tender. That being said, every state has their currency recognised as legal tender. However, they do not have a second currency that they adopt to be a legal tender with the exception of European Union that falls back on the Euro Dollar which is accepted by all its member states.

Asset dominated in currency is a solution to avoid this complication of finding that one legal tender. In countries that a legal tender is recognised, it is wrong to refuse to accept that legal tender because it is given its badge of value and authority by law. For instance, a person demanding payment cannot refuse to accept the states' legal tender. But in situation where it is an asset denominated in currency, it can be a choice not to accept.

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This term is used because in countries such as the United States and many other, cryptocurrencies are generally regarded as assets. It is taxable and it can be computed. In the same breath it is used like a currency. Hence, it plays dual role but to avoid confusion between a legal tender and the recognition of cryptocurrencies, it must have a new name.

The Reach of Payment Services Act

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This piece of legislation has one major purpose in sight. It is not for collection of revenue or for clamping of terrorism activities. This legislation is meant to ensure that the exchanges and whoever who operates a financial service that relates to crytocurrency remains accountable to its customer. Specifically addressing the Mt Gox scandal.

The most relevant part of this legislation can be seen in the perimeters that it has outlined. It states as follows:-

(i)(a) purchase, sale, or exchange of virtual currencies, (b) intermediation, brokerage, or agency in conducting actions set forth in (a), or (c) the management of cash or virtual currencies in relation to (a) and (b),
(ii) on a regular basis

Reading Item (i) and (ii) together, this piece of legislation is not meant to catch people who have some bitcoins in hand and want to dispose it to buy a laptop for himself. It does not apply to those who earn their salary in cryptocurrency and wishes to dispose it for normal fiat. It applies to people or corporate bodies that operates the cryptocurrency as a commercial interest.

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A new regulatory body is introduced by this Payment Services Act and it is called Certified Association for Payment Service Providers that is a self regulatory body for individuals or corporate body that falls within the ambit of this Act.

The next posting we will explore the limitations of this Act and how it can be abused.

credit to @zomagic