Blockchain Financial Licenses in the United States
Cryptocurrency entities must register with FinCEN and obtain state and Federal licenses to engage in their business activities. Failure to do so can lead to severe penalties. It is important to routinely review regulations because they change frequently.
Sia Partners is familiar with individual state requirements and has former US regulators on staff to ensure that Money Transmitter registration and cryptocurrency licensing are completed accurately and on a timely basis.
Various states have different licensing requirements for blockchain businesses. For example, New York requires that a virtual currency business be licensed with the State’s Money Transmitter Law. Alternatively, it can obtain a charter under the State’s Banking Law as a limited purpose trust company or a commercial bank and may exercise fiduciary powers. However, this process is expensive and time-consuming.
In addition, several states have a narrow definition of “money” and do not include cryptocurrency in it. Therefore, it is important to understand the differences in licensing laws when choosing a location for your blockchain business.
Other states have enacted more comprehensive legislation that defines cryptocurrencies and blockchain. In Oklahoma, for example, a bill was proposed that would permit a corporation to specify in its articles of incorporation that shares are represented by certificate tokens. The bill also excludes open blockchain tokens from security and money transmission laws.
In addition, multiple bills have been introduced in Congress that would amend existing law to address blockchain technology. The House of Representatives has a bill that would make it illegal to use blockchain for firearm owner data. Another bill would allow the public to view and validate the information stored on a blockchain. The Senate has a resolution that supports the growth of blockchain in the United States. It is worth noting that these bills are currently in the pipeline and have yet to be voted on.
There are a number of different laws and regulations that govern blockchain financial licenses in the United States. Some of these are state-specific, while others are more general. For example, in New York, there is a special license called a BitLicense that regulates virtual currency businesses in the state. This license requires that virtual currency firms have strict compliance and supervisory policies in place. In addition, they must have anti-money laundering and know-your-customer programs. New York also requires that firms comply with cybersecurity and other state-specific requirements.
Some states have passed laws that are favorable towards cryptocurrencies and blockchain technology. These laws exempt virtual currencies from securities and money transmission statutes, as well as establish a regulatory framework for the industry. These state initiatives are intended to encourage investment in the cryptocurrency and blockchain industry. However, these laws have not been effective in attracting major investments.
Other states have passed laws that are more restrictive. These laws are designed to prevent local governments from taxing blockchain use. For example, Nevada recently enacted a bill that bans local governments from imposing taxes on blockchain-based services. Additionally, the state has adopted a law that prohibits noncompete agreements in the blockchain industry.
A financial license is a critical factor when it comes to establishing a cryptocurrency business in the United States. However, the rules surrounding this type of licensing vary across states. Some are more friendly to virtual currency companies than others. For example, New York’s BitLicense requires a comprehensive regulatory framework, including strict anti-money laundering and know-your-customer policies. This has led to an exodus of virtual currency businesses from the state.
Other states have enacted laws that provide more flexibility for virtual currency businesses. For instance,How much can Monero reach in value? , Idaho’s Department of Finance opined that Bitcoin ATMs do not require a money transmission license. Moreover, Massachusetts has enacted legislation that defines digital currencies as “marketplace facilitators” subject to sales and use tax collection.
In addition, some states have introduced bills that specifically address blockchain technology. For example, Rhode Island has proposed a bill that exempts a developer or seller of open blockchain tokens from securities and money transmission laws. The bill has been referred to the House of Representatives for further study.
Those looking to obtain a financial license in the United States can find a list of state-specific requirements at the Nationwide Multistate Licensing System and Registry (NMLS). The NMLS is a central repository for the licensing information of all state-regulated industries, providing efficiencies and improving supervision of licensed businesses. Using the NMLS, companies can maintain a single record to apply for, amend, surrender or change their state licenses.
In the United States, blockchain technology has the potential to improve privacy by allowing consumers to keep their digital assets in their own control. It can also allow businesses to offer personalized services to meet the specific needs of each consumer. In addition to providing better security for personal information, blockchain can also make it easier for people to monitor their investment performance.
Currently, most states require businesses that offer virtual currencies to obtain a state money transmitter license. However, this licensing regime can be cumbersome for some businesses. For example, New York’s BitLicense requires companies to comply with a long list of requirements, including anti-money laundering and know-your-customer (KYC) policies. These requirements can be burdensome for a small business and may deter some investors from investing in crypto-assets.
However, several states are now easing restrictions on their BitLicenses in order to lure cryptocurrency businesses back to their markets. For instance, Idaho has issued no-action letters to cryptocurrency businesses that do not engage in direct sales of virtual currencies. Similarly, New York is easing its requirements for attaining a BitLicense in hopes of luring back businesses that have fled the state.
Moreover, getting the proper crypto-related licenses can help a company avoid expensive fines and penalties. A bank is less likely to service a crypto-related company that does not have the appropriate licenses, which can lead to bankruptcy for the firm.