TAKING YOUR DIGITAL CURRENCY BUSINESS TO THE US – TACKLING STATE-LEVEL REQUIREMENTS

If you are in cryptocurrency and want to service the US market then a registration with The Financial Crimes Enforcement Network (FinCEN) as a Money Service Business (MSB) is usually a pre-requisite.

By registering as a MSB at a federal level, your next question should be whether you are required to register at a state level too. Make sure that you are you clear in which states you will be operating, as these have to be listed on the FinCEN registration form.

Below we have collected the position of states on cryptocurrency and whether they will require state-level MSB licensing. This information is simply provided to facilitate your research into this area and we disclaim any liability for any inaccuracies.

In a state where there are no MSB laws, then naturally you would be inclined to operate there, but at present, there are only a few.

Also, you may be inclined to operate in certain states where there has been no specific guidance on Virtual Currency (VC) but it would be completely reckless to do so. You should check with the state regulator first before jumping in.

A handful of the 50 states have provided some clear guidance on which cryptocurrency business models they will license. In very general terms, the approach seems to include decentralised cryptocurrency within the definition of ‘monetary value’. The implications of which are that the standard MSB regulated activity of ‘money transmission’ can be done now using cryptocurrency.

NONE OF THE BELOW SHOULD BE RELIED UPON AS LEGAL ADVICE. 

VC Licensing States

Connecticut

Virtual Currency licensing requirement

Covers the transmission of monetary value in the form of Virtual Currency.
“[R]equires an applicant for a money transmitter license to indicate whether the business will transmit virtual currency (such as Bitcoin), allows the commissioner to deny such a license if the proposed business model poses an undue risk of financial loss to consumers, and allows him to place additional requirements on such a license including requiring different surety bond amounts than for other money transmitters.”

Status: Passed House and Senate, Signed into Law
PA 15-53—sHB 6800

Georgia

Legislation to empower regulator to create rules for all virtual currency businesses. No further guidance provided, as yet.

Status: Introduced in House

Kansas

Kansas provided a Guidance Note on the interpretation of the Kansas Money Transmission Act (KMTA) to cryptocurrency businesses. Essentially, the exchange of VC to fiat by an exchange would constitute money transmission.

See the Regulatory Treatment of Virtual Currencies Under the Kansas Money Transmitter Act.

“Exchange of cryptocurrency for sovereign currency through a third party exchanger is generally considered money transmission. For example, most Bitcoin exchange sites facilitate exchanges by acting as an escrow-like intermediary. In a typical transaction, the buyer of cryptocurrency sends sovereign currency to the exchanger who holds the funds until it determines that the terms of the sale have been satisfied before remitting the funds to the seller. Irrespective of its handling of the cryptocurrency, the exchanger conducts money transmission by receiving the buyer’s sovereign currency in exchange for a promise to make it available to the seller.”

No reference to exchange of VC for other VCs. Advisable to seek further guidance from Office of the State Bank Commissioner (OSBC). Note MSB licensing requirement in Kansas does not define VC as a Permissible Instrument so, most likely, exchange will need to have a reserve of US dollars to cover outstanding liabilities in VC. In addition, there is a requirement for a regular software audits.

Massachusetts

Commonwealth of Massachusetts Division of Banks
Division of Banks

1000 Washington Street, 10th Floor
Boston, MA 02118-6400
Division of Banks

Conducted a VC survey in 2014
Currently brokerage of VC is not subject to foreign transmittal license. Potentially peer-to-peer (P2P) VC exchange may be subject to licensing.

Opinion 14-004:

“Massachusetts General Laws chapter 169 requires that all persons who engage or are financially interested in the business of receiving deposits of money for the purpose of transmitting the same or equivalents thereof to foreign countries obtain a foreign transmittal agency license from the Division. In a bitcoin transaction, the kiosk either receives funds or receives bitcoins. The purpose is not for transmission to a foreign country but rather the purchase of bitcoins from Coindeavors by the user. Coindeavors will be selling its own bitcoins to the user-buyer at the kiosk. The company is physically located in Massachusetts as will be its kiosks. All bitcoin transactions with users will take place entirely in Massachusetts. Based on the facts presented, Coindeavors is not required to be licensed as a foreign transmittal agency by the Division.”

New Jersey

Licensing regime

Captures custodians of VC that hold assets for more than 30 days (see page 29).

New Hampshire

Money Transmission licensing regime includes VC exchanges.

References:
https://legiscan.com/NH/text/HB356/id/1073681
https://www.nh.gov/banking/consumer-assistance/virtual-currency.htm
http://gencourt.state.nh.us/rsa/html/XXXVI/399-G/399-G-1.htm

North Carolina

North Carolina licenses VC exchanges as Money Transmitters.

Guidance provided on an website FAQ by North Carolina Commissioner of Banks:

The North Carolina Money Transmitter Act (NC MTA) requires all persons engaged in the business of money transmission to obtain a license. Because the NC MTA defines “money transmission” as the “act of engaging in the business of receiving money or monetary value for transmission within the United States or to locations abroad by any and all means, including payment instrument, wire, facsimile, or electronic transfer,” and further defines “monetary value” as a “medium of exchange, whether or not redeemable in money,” virtual currency is within the scope of the NC MTA. See N.C. Gen. Stat. 53-208.3(a), 53-208.2(a)(11)(b), and 53-208.2(a)(12) (2015).

A virtual currency exchanger is a person that exchanges virtual currency for fiat currency or other virtual currencies, and vice versa. An exchanger who sells their own stock of virtual currency is generally not considered a virtual currency transmitter under the NC MTA. In contrast, an exchanger that holds customer funds while arranging a satisfactory buy/sell order with a third party, and transmits virtual currency and fiat currency between buyer and seller, will typically be considered a virtual currency transmitter.

In June 2016, NCCOB provided further guidance on exemptions that would apply. Miners are now explicitly excluded, software and multi-signature wallets excluded and ‘blockchain 2.0’ projects. More details on implications here.

Nevada

Nevada Financial Institutions Division

Investor warning notice:
http://business.nv.gov/News_Media/Press_Releases/2014/FID/Nevada_Financial_Institutions_Division_issues_consumer_and_investor_guidance_on_virtual_currency/
http://nvsos.gov/Modules/ShowDocument.aspx?documentid=3306

New York

Licensing of VC exchanges and other models:
http://www.dfs.ny.gov/legal/regulations/adoptions/dfsp200t.pdf

Washington State

Washington State Department of Financial Institutions
VC Exchanges subject to MSB licensing

“In Washington, digital currency is included in the definition of “Money Transmission” in the Uniform Money Services Act (UMSA)”:
http://www.dfi.wa.gov/bitcoin

Uniform Money Services Act:
http://app.leg.wa.gov/rcw/default.aspx?Cite=19.230

Wyoming

Wyoming Division of Banking
State licenses VC providers and or exchanges.
Virtual currency defined as permissive instrument. Exchanges likely to require MSB licensing.

Reference: http://mortgage.nationwidelicensingsystem.org/slr/PublishedStateDocuments/WY-Money-Transmitter-Company-Description.pdf

Texas

Texas Department of Banking

Guidance interprets Texas Money Services Act and captures VC exchanges

Exchange of cryptocurrency for sovereign currency through a third-party exchanger is generally considered a money transmission.

Reference:
http://www.dob.texas.gov/public/uploads/files/consumer-information/sm1037.pdf

Tennessee

Guidance provided by Department of Financial Institutions and captures VC exchanges.

“Exchange of cryptocurrency for sovereign currency through a third-party exchanger is generally money transmission. For example, most Bitcoin exchange sites facilitate exchanges by acting as an escrow-like intermediary […] Exchange of one cryptocurrency for another cryptocurrency is not money transmission. Regardless of how many parties are involved, there is no receipt of money, and therefore no money transmission occurs.”

Reference:
http://tn.gov/assets/entities/tdfi/attachments/2015-12-16_TDFI_Memo_on_Virtual_Currency.pdf

Pennsylvania

VC added to definition of money

Most likely to include VC exchanges.

Money “means currency or legal tender or any other product that is generally recognized as a medium of exchange and shall include any form of virtual currency.”

Section 2. License Required.– (a) No person shall engage in
the business of transmitting money by means of a transmittal
instrument for a fee or other consideration with or on behalf of
an individual without first having obtained a license from the
[Department of Banking nor shall any person engage in such
business as an agent except as an agent of a person licensed or
exempted under this act.] department.

Reference:
http://www.legis.state.pa.us/CFDOCS/Legis/PN/Public/btCheck.cfm?txtType=PDF&sessYr=2015&sessInd=0&billBody=H&billTyp=B&billNbr=0850&pn=1029