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Kansas Regulatory Agency Issues Guidance on Cryptocurrencies 

The Kansas Office of the State Bank Commissioner (“OSBC”) recently issued guidance on whether the Kansas Money Transmitter Act (”KMTA”) covers transactions involving cryptocurrencies.  OSBC has concluded that decentralized cryptocurrencies such as Bitcoin are not considered “money” or “monetary value” under the KMTA, and thus are not subject to regulation under the KMTA.  The guidance, however, does indicate that if “the transmission of virtual currency include[s] the involvement of sovereign currency (i.e., the U.S. dollar) in a transaction, it may be considered money transmission depending on how such transaction is organized.”

OSBC provided the following guidance concerning specific transaction structures:

1) Exchange of cryptocurrency for sovereign currency between two parties is not money transmission under the KMTA, but constitutes a simple sale of goods between two parties.

2) Exchange of one cryptocurrency for another cryptocurrency is not money transmission under the KMTA because cryptocurrencies are not considered “money” or “monetary value” under the KMTA.

3) Exchange of cryptocurrency for sovereign currency through a third party exchange is generally considered money transmission.  Thus, a site acting as an escrow-intermediary to facilitate the exchange of Bitcoin would have to register as a money transmitter in Kansas.

4) Exchange of cryptocurrency for sovereign currency through an automated machine may not be money transmission depending on the facts and circumstances of its operation and the flow of funds between the operator of the automated machine and the customer.  The question OSBC asks is whether the machine involves a third party, or instead only facilitates a sale or purchase of cryptocurrency by the machine’s operator directly with the customer.  If the transaction involves a third party, such as a Bitcoin exchange site, the operator of the machine receives money (for example, U.S. dollars) with the intent to transfer that money to the seller of the cryptocurrency.  This type of transaction, according to OSBC, constitutes money transmission under the KMTA.