North Carolina has amended its Money Transmitters Act, to introduce a new #Bitlicence.

The new legislation was introduced into the North Carolina General Assembly on 18 March 2015, at the request of  the Office of the North Carolina Commissioner of Banks (the Commissioner); it passed its 3rd reading in the House on 5 December 2015, and in the Senate on 27 June 2016; and Governor McCrory signed it into law yesterday.

The new law seems straight forward, at least on its face:

  • No person … shall engage in the business of money transmission in [North Carolina] without a license…
  • … a person is considered to be engaged in the business of money transmission in [North Carolina] if that person solicits or advertises money transmission services from a Web site that North Carolina citizens may access in order to enter into those transactions by electronic means
  • For these purposes:
    • money transmission” is defined as “To engage in the business of …: … (b) Receiving money or monetary value for transmission or holding funds incidental to transmission within the United States or to locations abroad by any means … primarily for personal, family or household purposes. This includes maintaining control of virtual currency on behalf of others”
    • virtual currency” is defined as “A digital representation of value that can be digitally traded and functions 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

Result: the law almost certainly applies to custodian exchanges and wallet providers offering non-fiat virtual, digital and crypto-currency services to consumers. It may also apply to some other service providers, in some other circumstances – although exactly when or how is less clear.To get a #Bitlicence, a business must:

  • Submit an application to the Commissioner;
  • Pay a non-refundable filing fee of at least $1,500;
  • Have, and maintain, a net worth of at least $250,000;
  • Post and maintain a surety bond with the Commissioner for at least $150,000 – although (a) this amount will be increased if the money transmission volumes in North Carolina are greater than $1,000,000 a year; and (b) the bond can be replaced by cash, or near-cash financial instruments, if that’s what the applicant would prefer. The Commissioner also has the discretion to require the applicant to obtain (additional) insurance for cybersecurity risks, if they’re not within the scope of the surety bond (or there isn’t one).

Licensees are also required to have and maintain unencumbered cash, or near-cash financial instruments, with an aggregate market value which is at least as much as the aggregate face value of their outstanding transmission obligations, although the Commissioner can waive or reduce this if the dollar value of the licensee’s outstanding obligations is less than the value of the bond or other posted security.

At least 7 other US States have, or have been working on, a #Bitlicence of some kind (the 7 are: California (see here and here), Georgia, New York, Pennsylvania, Tennessee and Wyoming). Australia, Japan and a number of other countries are also considering whether, and if so how, to introduce a #Bitlicence of their own, or have done so. However, the UK is unlikely to join this “club” in the foreseeable future. The Bank of England has given a cautious welcome to FinTech, and it’s beginning to respond to the challenges and opportunities it brings. The UK’s Treasury is in a similar position. But the Treasury, the Bank of England, Parliament and the UK’s regulators are still to be persuaded that a UK-specific #Bitlicence is necessary or desirable at this stage. If #Brexit occurs, that might help – a #Bitlicence could encourage innovation, and that might enable the UK to attract and retain more FinTech business. But #Brexit is just as likely to hinder developments in this area, if only because it will make it even harder to find the Parliamentary and regulatory time required to develop and implement a new regime. That doesn’t mean that #Bitcoin exchanges and wallet providers are entirely outside the regulatory perimeter – they will almost certainly have to comply with the UK’s amended 4th Anti-money Laundering Directive implementing rules from 1 January 2017. But it does mean that the potential benefits of a #Bitlicence are likely to be further away than ever.

Posted by Cooley