On April 17, the state of Washington enacted a new law that, among other things, formally adds virtual currency to its money transmitter law. [Edit: This law goes into effect on July 23, 2017.]

The new law incorporates virtual currency into the definition of money transmission. It defines “virtual currency” as “a digital representation of value used 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.” The definition does not include “the software or protocols governing the transfer of the digital representation of value or other uses of virtual distributed ledger systems to verify ownership or authenticity in a digital capacity when the virtual currency is not used as a medium of exchange.”

The new law requires a third party security audit for business models that store virtual currency on behalf of others. It also allows virtual currency companies to hold “like-kind virtual currencies” to satisfy its permissible investments requirements. Virtual currency licensees must also disclose to consumers a schedule of fees and charges, whether the product or services are insured, whether the transfer is irrevocable, the licensee’s liability for mistakes, and additional disclosures as required in further rulemaking.

Further, the law provides for the following:

  • Includes in its definition of “Licensee” any person inside or outside Washington that fails to obtain a required license.
  • Excludes from its definition of “money transmission” the “provision solely of connection services to the internet, telecommunications services, or network access; units of value that are issued in affinity or rewards programs that cannot be redeemed for either money or virtual currencies; and units of value that are used solely within online gaming platforms that have no market or application outside of the gaming platforms.”
  • Includes additional exemptions similar to those under federal law regarding money transmitters as well as new exemptions regarding accountants and payroll services providers.
  • Places the burden of proving the applicability of an exclusion or exception on the person claiming the exclusion or exception.
  • Adds a new section that applies to fiat online currency exchangers.
  • Makes civil penalties $100 per violation per day for each day the violation is outstanding.

View the bill here and the bill report here.

Posted by Josh Garcia

Fintech lawyer specializing in digital currencies, blockchain, payments, and lending.