Financial service industries have come a long way by adopting decentralized ledger technology (DLT), or more frequently termed blockchain. This is only the beginning. With blockchain technology entities can avoid many of the traditional hurdles. At the same time, jurisdictional regulations are attempting to keep up with the exponential spread of blockchain technologies throughout a multitude of industries. These attempts to revamp corporate law, securities regulations, or state legislations are helping the blockchain implementation become more legitimate.
As of 2015, many U.S. states passed legislation to regulate virtual currencies. States with strict crypto laws, like New York, placed virtual currency under the appropriate state laws and require virtual currency exchanges to obtain money transmitter licenses. As of today, there are significant variations in state laws that regulate entities that deal with cryptocurrencies. Some exchanges close their operations in certain states because they don’t have the appropriate resources to keep up with gradually implemented regulations.
Furthermore, on July 19, 2017, the Uniform Law Commission (ULC) approved a Uniform Regulation of Virtual Currency Business Act (Uniform VCBA), which took over two years to draft. States can use this Uniform VCBA as a model to enact virtual currency legislation. Even though it is unlikely that we will see the same exact legislations, regarding virtual currency, in every state, it is propitious that states will implement a similar framework. This will be beneficial to entities that provide services that deal with money transmission and those that need special licenses to operate.
Uniform VCBA would demand companies to have comprehensive compliance programs and AML procedures to prevent any machinations, fraud, or money laundering. Moreover, Uniform VCBA would rely on the Financial Crimes Enforcement Network (FinCEN) to look out for anti-money laundering problems.
Cryptocurrencies and their corresponding decentralized technologies are gaining solid ground in our financial system. Government participation gradually removes the stigma of how illegitimate this emerging market is viewed as. Efforts from both, the private and public sector, is giving blockchain technology a more mainstream role in current and future industries.
Felix Shipkevich is a principal of Shipkevich PLLC. His practice focuses on providing counsel to FinTech and financial services firms, including financial technology, payments and emerging digital currency space. He has spoken at national panels in the money transmitter space and payments industry. Mr. Shipkevich’s payments practice has brought him into contact with money transmitter registration requirements in all fifty U.S. States.
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