FinCEN to Bitcoin Administrators & Exchangers – You are Money Transmitters

MSB Talk 4

According to the statutes and regulations released by FinCEN on March 18, 2013 regarding virtual currencies, administrators and exchangers of Bitcoin will be treated as money transmitters.

An administrator or exchanger that (1) accepts and transmits a convertible virtual currency or (2) buys or sells convertible virtual currency for any reason is a money transmitter under FinCEN’s regulations, unless a limitation to or exemption from the definition applies to the person.

The definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies. Accepting and transmitting anything of value that substitutes for currency makes a person a money transmitter under the regulations implementing the BSA.

Bitcoin

What does it mean to be classified as a money transmitter in respect to surety bonds?

Although money transmitters are regulated at the federal level, surety bond requirements are set by each individual state. The majority of US states require a company licensed as a money transmitter to post a surety bond as part of the state licensing process. Bond amounts range from $25,000 to $2,000,000+ based on a statutory or variable amount set by the state’s regulators.

A nationally licensed money transmitter is required to post approximately $7,000,000 in total surety bonds. At a premium cost of 1-2% of the aggregate total, Bitcoin administrators and exchangers with clients on a national scale will pay $70,000 – $140,000 for their surety bonds and the opportunity to be in business.

Since Bitcoin is a virtual currency, it would be extremely difficult to operate on anything other than a national scale. Therefore, any administrator or exchanger that is unable to qualify or pay for the $7,000,000 in surety bonds will be forced to close their doors or face legal action.

The question is, what will the impact be on the Bitcoin market as the number of administrators and exchangers decrease due to new regulations?

Please share your thoughts in the comments section. 

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6 thoughts on “FinCEN to Bitcoin Administrators & Exchangers – You are Money Transmitters

  1. Pingback: Are Money Transmitters Risking Licenses By Partnering With Virtual Currency Operators? | MSB Talk

  2. I’m trying to get up to speed on all of this so I’m doing research and I don’t know much.

    The article says “Since Bitcoin is a virtual currency, it would be extremely difficult to operate on anything other than a national scale”.

    I don’t follow why BTC being virtual implies operating at a national scale? Couldn’t a business start out in just one state and conduct all business face-to-face like selling gold coins?

  3. Also, I don’t understand why a person selling BTC for USD face-to-face is a money transmitter and not doing simple cash currency exchange? Does a person who buys and sells cash USD and cash GBP over the counter need to be licensed as a money transmitter? Thanks!

    • Hey Peter,
      Thanks for your comments and questions. The first point to mention is that face-to-face transactions can be considered either money transmission or foreign currency exchange. FX brokerages require a license in 20+ states and money transmitters in 47 states plus Washington DC. Each state will determine how to regulate the business based on their regulations. The second point to mention is in regards to virtual currency companies being on a national scale. You are correct in the fact that virtual currency companies can be “local” or “regional”. My comments were geared more to the exchanges that are web-based. In this instance, state regulators make it difficult to only serve customers in specific states while “blocking” customers from other states. Recently, a state regulator made it clear that criminal charges could be pursued if a resident in their state used a company’s services without the company being licensed in the state…even if the company took all possible measures to “block” residents from that state. This is the reason for my comment. However, I agree that my comment was lacking so thank you for calling it to my attention.

      • Hi Brian,

        I appreciate the reply and information! It seems I have lucked out by being in SC which (from what I understand so far) is one of four states with no regulations for MSBs. Since I won’t do more than $1000 per day per person and everything will be face-to-face, I think I’m OK to go so far as the Feds are concerned too. These are exciting times for Bitcoin and there seem to be a lot of opportunities but no one wants to get into trouble by inadvertently violating a regulation. Thanks again!

      • Yes, you have certainly lucked out on the state level. As you say, no one wants to get into trouble by inadvertently violating a regulation so I would simply advise you to be 100% sure you’re good to go at the federal level. My unsolicited recommendation would be to speak with an experienced money transmitter attorney and/or compliance professional just to make sure you’re OK if you haven’t done that already. In any case, keep fighting the good fight. Good luck to you.

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