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Financial Services Law Insights and Observations

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  • Money Transmitter Licensing Changes in New Hampshire and Washington for Virtual Currencies

    State Issues

    On August 1, New Hampshire HB 436 went into effect, “exempting persons using virtual currency from registering as money transmitters” under the state’s money transmitter licensing laws. The new exemption applies to persons who “engage in the business of selling or issuing payment instruments or stored value solely in the form of convertible virtual currency” or “receive convertible virtual currency for transmission to another location.” However, the exemption provides that such persons are “subject to” certain state consumer protection laws.

    Separately, Washington SB 5031 took effect on July 23, amending the state’s Uniform Money Services Act as it relates to money transmitters and currency exchanges. With respect to virtual currencies, the amendments, among other things: (i) define “virtual currency”; (ii) subject virtual currencies to the state’s money transmitter licensing laws (the definition of “money transmission” now includes virtual currency transmissions); (iii) require businesses that “store virtual currency on behalf of others” to provide the state with “a third-party security audit of all electronic information and data systems” when applying for a money transmitter license; (iv) require virtual currency licensees to “hold like-kind virtual currencies of the same volume . . . obligated to consumers”; and (v) require virtual currency licensees to provide certain disclosures “to any person seeking to use the licensee’s products or services,” including a schedule of fees and charges, and whether the product or services are insured.

    State Issues State Legislation Fintech Digital Commerce Virtual Currency Money Service / Money Transmitters

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  • Illinois Finalizes Digital Currency Regulatory Guidance

    FinTech

    On June 13, the Illinois Department of Financial and Professional Regulation (IDFPR) issued final guidance on the regulatory treatment of digital currencies with an emphasis on decentralized digital currencies. (See IDFPR news release here). As previously covered in InfoBytes, the IDFPR requested comments on its proposed guidance in December of last year in order to devise the proper regulatory approach to digital currency in compliance with money transmission definitions in the Illinois Transmitters of Money Act, 205 Ill. Comp. Stat. 657/1, et seq. (TOMA).

    The “Digital Currency Regulatory Guidance” clarifies that digital currencies are not money under TOMA, and therefore, those engaged in the transmission of digital currencies are not generally required to obtain a TOMA license. The IDFPR noted, however, that “should transmission of digital currencies involve money in a transaction, that transaction may be considered money transmission” and suggested persons engaging in such transactions request a determination regarding whether or not the activity will require a TOMA license.

    To provide additional clarity, the guidance includes examples of common types of digital currency transactions that qualify as money transmissions, as well as examples of activities that do not qualify as money transmission.

    Fintech State Issues Digital Commerce Virtual Currency Money Service / Money Transmitters

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  • New Hampshire Legislation Adds Money Transmitter Licensing Exemptions

    State Issues

    On June 7, New Hampshire Governor Chris Sununu signed into law H.B. 436, which exempts persons using virtual currency from registering as money transmitters. The law states that “persons who engage in the business of selling or issuing payment instruments or stored value solely in the form of convertible virtual currency or who receive convertible virtual currency for transmission to another location” are now exempt but are subject to the provisions of the state’s statute regulating business practices for consumer protection. The law takes effect August 1.

    Fintech Virtual Currency State Legislation Money Service / Money Transmitters

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  • PA Amends Money Transmission Business Licensing Law

    State Issues

    Pennsylvania’s Secretary of Banking and Securities, Robin L. Wiessmann, issued guidance to businesses engaged in money transmission to inform them of significant changes that will be required for their businesses as a result of amendments to the Money Transmission Business Licensing Law. Governor Tom Wolf signed the changes into law on November 3, 2016 (Act 129 of 2016) and the new law became effective on January 2, 2017.

    State Issues Digital Commerce Payments Money Service / Money Transmitters

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  • Florida Judge: "Bitcoin Has a Long Way to Go Before it is the Equivalent of Money"

    FinTech

    On July 25, a Florida judge for the Eleventh Judicial Circuit dismissed criminal charges against an individual engaged in the business of selling bitcoin. Florida v. Espinoza, No. F14-2923 (Fl. Cir. Ct. July 26, 2016). The defendant conducted various bitcoin transactions with an undercover detective. The State of Florida had charged the individual with one count of unlawfully engaging in business as a money services business in violation of § 560.125(5)(a), Fla. Stat. and two counts of money laundering, in violation of § 896.101(5)(a) and (5)(b), Fla. Stat. The State later amended its filing to include charges of unlawfully operating as a “payment instrument seller” in violation of § 560.103(29), Fla. Stat. The judge dismissed the money-transmission-related charges, reasoning that (i) under the plain meaning of § 560.125(5)(a), a “money transmitter” would operate in a similar manner as a middleman in a financial transaction; and (ii) case law “requires that a fee must be charged to meet all the elements of being a money transmitter business.” The defendant, according to the judge, was not a middleman, but rather a seller. The judge further noted that the “difference in the price he purchased the Bitcoin for and what he sold it for is the difference between cost and expenses, the widely accepted definition of profit.” The judge also found that the defendant was not a “payment instrument seller” because bitcoin is not a payment instrument. The judge stated that “[b]itcoin has a long way to go before it is the equivalent of money,” and that “attempting to fit the sale of Bitcoin into a statutory scheme regulating money services businesses is like fitting a square peg in a round hole.” The judge further dismissed the counts of money laundering, ultimately concluding that “[w]ithout legislative action geared towards a much needed updated to the particular language within [the relevant statutes], this Court finds that there is insufficient evidence as a matter of law that this Defendant committed any of the crimes as charged, and is, therefore, compelled to grant Defendant’s Motion to Dismiss as to Counts II and III.”

    Money Service / Money Transmitters Virtual Currency

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  • North Carolina Passes House Bill 289, Enacts the Money Transmitters Act

    FinTech

    On June 30, North Carolina Governor Pat McCrory signed into law House Bill 289, submitted at the request of the Office of the North Carolina Commissioner of Banks (Commissioner).The Act, which enacts the newly revised North Carolina Money Transmitters Act, subjects certain virtual currency activities to licensure, as well as clarifies that the Act applies to activities that are for personal, family, or household purposes. Applicants seeking licensure must do so via the Nationwide Multistate Licensing System (NMLS) and in accordance with requirements set forth by the Commissioner. Regarding licensure, the “Commissioner has the discretion to require the applicant obtain additional insurance coverage to address related cybersecurity risks inherent in the applicant’s business model as it relates to virtual currency transmission and to the extent such risks are not within the scope of the required surety bond.” The Act purports to be effective as of October 1, 2015.

    Money Service / Money Transmitters Virtual Currency

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  • South Carolina Passes AML Act to Regulate Money Transmitters

    FinTech

    On June 2, the South Carolina Legislature unanimously passed House Bill 4554, the South Carolina Anti-Money Laundering Act. The Act is intended to “provide regulation and oversight of the money transmission services business most commonly used by organized criminal enterprise to launder the monetary proceeds of illegal activities, and to provide definitions, exclusions, procedures, and penalties.” Among other things, the Act outlines licensure requirements for persons engaging in the business of money transmission and/or currency exchange. Pursuant to the Act, the South Carolina AG (or Commissioner) “may conduct an annual examination of a licensee or of any of the licensee’s authorized delegates [(as defined by the Act)] on a forty-five day notice in a record to the licensee.” In addition, the Act delegates to the Commissioner the authority to suspend or review a license or order a licensee to revoke the designation of an authorized delegate. The Act will take effect either one year after it is signed by the Governor or upon publication in the State Register of final regulations implementing the Act, whichever occurs later.

    Anti-Money Laundering Money Service / Money Transmitters

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  • CSBS and MTRA Issue Report on State Supervision of Money Services Businesses

    FinTech

    On May 24, the Conference of State Bank Supervisors (CSBS) and the Money Transmitter Regulators Association (MTRA) published a report titled “The State of State Money Services Businesses Regulation and Supervision.” According to the report, money services businesses (MSBs) are losing access to traditional banking services, with many banks “indiscriminately terminating the accounts of MSBs, or refusing to open accounts for any MSBs, thereby eliminating them as a category of customers.” Evidence suggests that banks are terminating or refusing to open MSB accounts partially because of the regulatory scrutiny surrounding the industry and the concern of BSA/AML risks. However, the report recognizes that MSBs are an important part of the financial system at large: “[MSBs], and specifically money transmitters, play a vital role in providing financial services to consumers and small businesses across the country. Countless Americans use MSBs every day to pay bills, purchase items online or send funds to family members and friends domestically and abroad.” Acknowledging the significant role MSBs play in providing financial services to U.S. households, the CSBS’ and MTRA’s report is intended to provide an outline of the states’ system of supervision of MSBs, highlighting that “state regulatory requirements are focused on consumer protection, safety and soundness and adherence to BSA/AML requirements and enforcement through state supervisory programs.”

    CSBS Money Service / Money Transmitters

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  • Georgia Department of Banking and Finance Authorized to Enact Money Transmission Regulations

    FinTech

    On April 26, Georgia Governor Nathan Deal signed into law HB 811, an Act to amend Title 7 of the Official Code of Georgia Annotated, which includes banking and finance provisions. Notably, the Act authorizes the Georgia Department of Banking and Finance to enact rules and regulations to apply to persons engaged in money transmission or the sale of payment instruments involving virtual currency, as it finds necessary to, among other things, ensure the continued solvency, safety, soundness, and prudent conduct of persons engaged in those businesses, protect customers, encourage high standards of honesty, transparency, fair business practices and public responsibility, and  provide customers with timely and understandable information about virtual currency products and services. The Act is effective July 1, 2016.

    Money Service / Money Transmitters Virtual Currency

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  • Massachusetts Division of Banks Issues Letter to Raise Awareness of Money Transfer Services Fraud

    FinTech

    On April 8, the Massachusetts Division of Banks issued a letter to CEOs of licensed money transmitters regarding an increase in consumer scams related to the use of money transfer systems. The Division noted that “it is important that your employees and agents, as well as your customers, become familiar with warning signs of a scam and take appropriate action to avoid them.” To this end, the Division encouraged money transmitters to review existing programs regarding agent monitoring and anti-fraud to ensure, among other things, that (i) staff and agents are appropriately trained to monitor transactions and identify red flags; (ii) staff is authorized to terminate or place a hold on transfers which raise red flags for suspected fraud; and (iii) comprehensive policies, procedures, and training requirements for compliance with the BSA are in place.

    Money Service / Money Transmitters

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