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Author Topic: Money Transmitter License for a Crypto Exchange Required by Every US State?  (Read 1506 times)
DigiByte
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February 08, 2014, 11:12:37 PM
 #1

We are from the DigiByte development team and we are interested in setting up a direct USD to DGB/BTC exchange. We have been researching several laws and it has become apparent not only do we need to abide by FinCEN regulations but we also need to apply for a money transmitter's license in each and every sate. Does anyone have any experience with this? Have any of the existing exchanges applied for state licenses?

It seems the precedent has now been set for state authorities to go after exchanges: http://krebsonsecurity.com/2014/02/florida-targets-high-dollar-bitcoin-exchangers/


Here is a link to PayPals licenses for each state: https://www.paypal-media.com/licenses

FinCEN regulations: http://www.fincen.gov/financial_institutions/

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DigiByte
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February 09, 2014, 12:06:29 AM
 #2

Could get very expensive very quickly.
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Forty-eight US states regulate money transmitters although the laws vary from one state to the other.[3] Most of the states[4] require a surety bond with widely ranging amounts from as little as $25,000 to over $1 million and maintaining a minimum capital requirement. There is an association of state regulators, the Money Transfer Regulators Association (MTRA)[5] that seeks to create uniformity and common practices and efficient and effective regulation of money transmission industry in the United States of America. The MTRA membership consists of state regulatory authorities in charge of regulating money transmitters and sellers of traveler’s checks, money orders, drafts and other money instruments.

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February 09, 2014, 02:07:28 AM
 #3

The latest estimates I've heard is $5 million and 2 years to get all the state licenses. This info is from a US based exchange that is currently going through the process.

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February 09, 2014, 05:46:07 PM
 #4

The other alternative is to become a SEC-registered broker/dealer. That's national. Every stockbroker has to do that.

There are exams, audits, insurance, and capital requirements, but for a legit exchange, not something someone is running out of their parents basement, it's the way to go.
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February 10, 2014, 04:17:51 AM
 #5

If you're not exchanging from crypto to US dollar or vise-versa I have not read a state reg that applies. I'm sure that is
one reason why Cryptsy and other do not offer crypto to USD yet.

FinCen on a federal level addresses crypto to crypto but can anyone point out some state regs where this is the case?

Edit: after some research it seems it varies from state to state but there are some state regulations that seem to apply
and it seems like a ticking time bomb and only a matter of time before some of these exchanges are shutdown.
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June 28, 2017, 08:50:53 PM
 #6

So does anyone know if just an individual who day trades from multiple exchanges.. does he need one of these?

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June 29, 2017, 12:47:38 AM
 #7

we know that two states do not require money transmission licensure: South Carolina and Montana. A third, New Mexico, only regulates negotiable instruments, a category which, so far, has not been applied to bitcoin.
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June 29, 2017, 03:11:08 AM
 #8

Could get very expensive very quickly.
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Forty-eight US states regulate money transmitters although the laws vary from one state to the other.[3] Most of the states[4] require a surety bond with widely ranging amounts from as little as $25,000 to over $1 million and maintaining a minimum capital requirement. There is an association of state regulators, the Money Transfer Regulators Association (MTRA)[5] that seeks to create uniformity and common practices and efficient and effective regulation of money transmission industry in the United States of America. The MTRA membership consists of state regulatory authorities in charge of regulating money transmitters and sellers of traveler’s checks, money orders, drafts and other money instruments.

I had to help write a feasibility report on this at CEX: ( you don't have to have a service offering in every state, and it's certain states that have a long history of financial regulation, that make up the bulk of the surety. Like New York and California. Some states are damn near freebies, inversely. The capital requirement is pooled, that is, there are only a few times where the state requires their capital requirement to stand alone, for liabilities sake (again, Cali, New York). Ultimately we hired a company to do this for us Wink

This is gatekeeper regulation; allowing citizens to run exchanges without oversight is dangerous from a liability standpoint. And without the AML/KYC (my part of that report), an exchange is facilitating money laundering, as per the law. The US gov does not fuck around with KYC/AML.

It's a neccesity, the regulations, but I do agree it's limiting.
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May 17, 2018, 12:24:21 AM
 #9

My colleague's firm has 50 state MTL's. And he is looking for partnerships in crypto area.
He also is looking to develop his own exchange but getting right dev's is concern for him!!!


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May 18, 2018, 01:33:14 PM
 #10

<...>

According to the Congress "2018 joint economic report" Chapter 9 (dedicated to crypto), exchanges are controlled by states, so the laws about them are not federal. In the document, there is also a proposal related to crypto exchanges.
You can read it in here: https://www.congress.gov/115/crpt/hrpt596/CRPT-115hrpt596.pdf

I hope it helps.

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May 18, 2018, 11:53:14 PM
 #11

I did a legal research paper before about regulations on cryptocurrency related businesses, however it was not for the US but for another country. I thought it was only a state regulation that is specifically required in NY. As from my study of the law, it was only NY who implemented the BitLicense law. Seems like this is no longer the case or probably other states are not imposing the BitLicense but only requiring Crypto exchanges to register as a money remittance agent and other appropriate laws.

In my study, I also analyzed Gemini exchange as a model. I believe they were not required to register under the BitLicense but were registered as a money remittance agent, a custodial service, and others. Although I am not very sure about it. Probably you could check them out.

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