On August 1, Louisiana joined New York, becoming the second state to regulate virtual currency activity through a licensing law, separate from its money transmission laws. This became official with the enactment of House Bill No. 701 (HB701).
Previously, New York and Louisiana (and, currently, the remaining 48 states) would regulate the issuing, storing, transferring and redeeming of virtual currency activity under state money transmission licensing law. Almost all U.S. states regulate money transmitters under state-specific licensing regimes and statutory definitions of money transmission are quite broad and can cover any entity that receives money for transmission. A key question is whether virtual currency activity falls under current definitions of “money” or “monetary value” or otherwise fits within money transmission laws. Beyond New York and Louisiana, Alabama and Georgia have addressed the issue by amending their money transmission laws to incorporate virtual currency activity, while New Mexico has issued guidance interpreting its money transmission laws to apply to virtual currency activity. Likely to follow Louisiana are Hawaii and Oklahoma, which have both introduced legislation to regulate virtual currency activity under standalone virtual currency frameworks.
As for HB701, however, is will be similar to New York law as it requires a license to engage in “virtual currency business activity” with or on behalf of a Louisiana resident. Here’s what you need to know:
- A “resident” includes “an individual, partnership, estate, business or nonprofit entity, or other legal entity” domiciled in or who has a place of business in the state.
- Virtual currency business activity includes “exchanging, transferring, or storing virtual currency or engaging in virtual currency administration.”
- Virtual currency is defined as “a digital representation of value that is used as a medium of exchange, unit of account, or store of value, and that is not legal tender, whether or not denominated in legal tender.” (This excludes, among other things, “digital representation of value issued by or on behalf of a publisher and used solely within an online game, game platform, or family of games sold by the same publisher or offered on the same game platform.”)
- Virtual currency administration constitutes “issuing virtual currency with the authority to redeem the currency for legal tender, bank credit, or other virtual currency,” which suggests that “stablecoins” could be subject to regulation under the regime.
The “transfer” of virtual currency subject to regulation is broadly defined to include assuming control of virtual currency from, or on behalf of, a resident and doing any of the following:
- Crediting the virtual currency to the account of another person
- Moving the virtual currency from one account of a resident to another account of the same resident
- Relinquishing control of virtual currency to another person
A license application must be submitted through the Nationwide Multi-State Licensing System (“NMLS”) and requires background information about the applicant, a business plan, information about FinCEN registration and related compliance matters, biographical information and criminal background checks for control persons, and surety bond and net worth requirements.
Note: Even though the applicant will be required to include information about any “money service or money transmitter license the applicant holds in” other states, the Louisiana virtual currency licensing regime does not appear to exempt a Louisiana licensed money transmitter, meaning companies engaging in virtual currency activity under a Louisiana money transmitter license currently will need to consider whether the new law requires a separate Louisiana license.