Category: Legal and Regulatory

Money Transmitter Law Updated by Washington to Include Virtual Currency

A law enacted on April 17 by the state of Washington, that among other things, formally made provision for the inclusion of virtual currency to its money transmitter laws. The new law that will officially go into effect in July this year will include virtual currency within the definition of money transmission. According to the new law, virtual currency is defined as “a digital representation of value used as a medium of exchange, a unit of account, or a store of value, but does not have legal tender status as recognized by the United States government.”  The new definition does not include “the software or protocols governing the transfer of the digital representation of value or other uses of virtual distributed ledger systems to verify ownership or authenticity in a digital capacity when the virtual currency is not used as a medium of exchange.”

Third party security audits will be required for business models that store virtual currency on behalf of others. Virtual currency companies will also be allowed to hold “Like-kind virtual currencies” to fulfill permissible investment requirements. A schedule of fees and services have to be disclosed to consumers irrespective of whether the products or services are insured, if the transfer is irrevocable, the liability of errors as well as any further disclosures. Additional provisions of the new law include:

  • The definition of “Licensee”  to apply to any person inside or outside Washington that fails to obtain a required license.
  • Exclusion from its definition of “money transmission” the “provision solely of connection services to the internet, telecommunications services, or network access; units of value that are issued in affinity or rewards programs that cannot be redeemed for either money or virtual currencies; and units of value that are used solely within online gaming platforms that have no market or application outside of the gaming platforms.”
  •  Exemptions to those under federal law pertaining to money transmitters and new exemptions regarding both payroll service providers accountants.
  • The burden of proving the applicability of an exclusion or exception placed on the person claiming the exclusion or exception.
  • Incorporation of a new section that applies to fiat online currency exchangers.
  • Civil penalties of $100 per violation per day incurred for each day the violation is outstanding.

Please click here for the official order.

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.


California Bill to Legalize Bitcoin Awaits Signing By Governor

California Assembly Bill 129 will make digital currencies, which include Bitcoin, Dogecoin, and others, legal in the state of California.

California Governor Edmund Brown must sign for the bill to pass.

An archaic Corporation law called Section 107 barred the usage of forms of money not considered legal US tender. Bill 129 would confirm digital currencies as legitimate and ultimately help foster digital currency businesses that have cropped up in California.