On “Bits” of Regulation: An Interview with Joe Ciccolo, President of BitAML and “Legacy Bank Defector”

By all accounts, bitcoin and other forms of digital currency are becoming mainstream. This trend has captured the attention of regulators as our global economy grapples with what a new digital money landscape looks like. All of this is occurring amidst a tsunami of change in technology, demographics, monetary shifts, and the prevailing political climate — all factors that are simultaneously butting up against legacy Industrial Age rules and regulatory structures.

The European Union for example just announced their intention to simply monitor rather than regulate virtual currencies for now, due uncertainties around how to justify new rules and regulations. Here, in part, is an acknowledgment that the global ecosystem of over 600 virtual currencies is still relatively minuscule, with bitcoin registering in at whopping 90 percent of this $7 billion sector.

Joseph Ciccolo, Founder and President of the Bloomington-Normal, Illinois-based BitAML finds himself at the epicenter of this evolving  regulatory landscape which has suddenly honed in on the bitcoin movement. His firm provides regulatory compliance advice and direction for a variety of digital money companies including bitcoin ATMs, exchanges, and broker platforms.

Prior to his current work, he spent ten years in the world of traditional bank compliance.  Says Ciccolo, “Having worked for several large, global financial institutions, I like to think of myself as a legacy bank defector.”

In this feature interview with BTCMANAGER, Ciccolo discusses implications of recent developments in regulation for digital currencies moving forward, and offers advice on keeping on the right side of compliance issues.

A Look Back at 2015

From a regulatory standpoint, Ciccolo believes that 2015 offered a few compelling scenarios that will inform policy actions moving forward.

He says that what hit people the most in the bitcoin community in the U.S. was the Ripple Labs settlement. “Whether good or bad, a bit of fear began to cascade across the industry relative to additional regulatory settlements. It has certainly raised a lot of eyebrows among businesses in the digital currency space relative to their regulatory compliance responsibilities,” says Ciccolo.

Post-ruling, regulators began to move away from narrow hard-line stances, opting to pursue a course of acknowledgment around the inevitable disagreements that often  surface amidst a changing landscape. Says Ciccolo,“I see this as a good thing.”

A second trend he highlights is where the securities aspect of bitcoin began to gain some attention. “We saw the Commodities Futures Trading Commission start to step forward, as well as the FCC to a lesser extent. They began to take some steps towards putting themselves out there and introducing regulation from a securities standpoint.”

And the third observation relative to 2015?  “Clearly the states began to really buckle down and make decisions about bitcoin regulation in their own individual environments.  They began to back off their obligatory, consumer warnings about the speculative nature of bitcoin and really started to say, ‘This is our stance as a state.’ As we saw in Texas, Georgia, North Carolina, New York and other areas, it became clear that the states wanted to come out and finally, issue their opinion. I think we’ll see more of that in 2016.”

On the Emergence of Bitcoin ATMs and Debit Cards: Will Regulatory Barriers Impede Momentum?

Ciccolo believes that in terms of bitcoin ATM’s, we’ll continue to see a sharp growth in this space. He says that the return on investment potential with these machines appears to be there but  suspects that there will be some competitive fee wars, particularly in the larger segments of this market. “Thus far FinCEN has stuck to their predictable guidance in this space. They’ve been very straightforward.”  

In terms of the bitcoin debit card innovations coming online, Ciccolo says, “This trend kind of came out of nowhere. So I think regulators are going to feel compelled to address this sooner rather than later,  We’re also hearing chatter from several consumer groups in terms of advocating for more consumer protection in the area debit cards just in general, not necessarily for bitcoin debit cards. So I think we’ll see some more discussions in this area in the hopes of earmarking clear lines of responsibility between debit card issuers and consumers.”

What Looms Ahead for 2016?

According to Ciccolo, it’s always difficult to predict where regulations will go in the modern regulatory landscape of the financial services sector.  Nevertheless, he offered a few poignant insights as we step into 2016.

“First, I would disagree with some of my colleagues who would have you believe that a new wave of regulatory fines are going to be handed out and that bitcoin has a target on its back. I just don’t see that as being  the case.”

Ciccolo does, however, believe that a lot more regulatory emphasis will be placed on new blockchain projects: “There’s no doubt  that this appears to be the shiny new object for regulators at present.” He also says that data security and consumer protection will be high-profile targets for regulators as well.

Staying Abreast of Shifts in a Rapidly Changing Regulatory Space

Ciccolo recommends to his clients that they pick up any and all disclosures and transcripts released by government agencies like FinCEN and begin to read them over. These documents, he says, offer lots of hints and subtle feedback in terms of what’s percolating in the minds of regulators — what they’re thinking and what they’re focused on.

“I always advise my  friends and clients in the industry is to sign up for email distribution from FinCEN and other agencies under which their entity falls so that they can get proactive notices on what’s happening in their industry.  Doing this demonstrates to regulators that you are staying abreast of news in the industry and that you are really committed to compliance.”

When all said and done, Ciccolo believes that this outreach on the part of government regulators is a positive thing, albeit a tricky one for bitcoin innovators.

“Honestly, I believe that there is a thirst for knowledge and a degree of humility among regulators and government officials. I think this is good news for the industry as I think that regulators are starting to come to grips with the limitations of their knowledge but more importantly, they really want to understand the perspectives of those they are going to regulate. So I think we’ll continue to see a willingness on their part to extend an olive branch in 2016 and in years to come.”