The Uniform Law Commission (ULC) recently held a committee meeting to continue its drafting of the Virtual Currency Business Act (“the Act”). The ULC Committee on Regulation of Virtual Currency Businesses Act is drafting this model legislation because of its recognition that
“virtual currency can be simply defined as a form of electronic value, the value of which depends on the market. It is not backed by government (so that it lacks status as legal tender). The interest in virtual currency arises because it is allegedly safer from hacking, often cheaper and faster, and has finality of payment. Virtual currencies have legitimate purposes and can be purchased, sold, and exchanged with other types of virtual currencies or real currencies.” Further, absent an “overarching federal payments regulatory framework, state laws need to be harmonized to the extent possible. This drafting committee will consider the need for and feasibility of drafting state legislation on the regulation of virtual currencies, and will examine issues such as licensing requirements; reciprocity; consumer protection; cybersecurity; anti-money laundering; and supervision of licensees.”
Berns Weiss LLP spoke with committee member Sarah Jane Hughes concerning the key issues that the committee addressed. She informed us that the committee intends to include an “on-ramp” for start-ups and small businesses that will allow those businesses to be exempt from the full licensure requirements for larger, more established companies. This on-ramp will allow states to set a dollar threshold for virtual currency activity or capitalization, below which companies will qualify for a provisional registration that is much less cumbersome than the full licensing requirements. While the details are still being finalized, the committee’s recognition of the importance of including this on-ramp signifies that its final draft of the Act will allow for start-ups and small businesses to grow their companies before they are required to comply with stringent and costly licensure requirements.
As defined by the Act, provisional registrants are those who have “registered with this state to conduct virtual currency business activity but whose volume of virtual currency business activity in this state is below the threshold required for [full] licensure.” The company would have to file a notice with the regulatory department; pay a modest registration fee; provide evidence of FinCEN registration as a money services business; agree to not invest or pledge virtual currency in its custody or control on behalf of others or to engage in the exchange or transfer of legal tender; and prove its policies for reporting, disclosures, and compliance.
Ms. Hughes emphasized that regardless of how states interpret the Act, businesses will still have to comply with FinCEN’s registration requirement. When asked about other pressing issues that were discussed at the meeting, Ms. Hughes pointed to virtual currency trust companies and the need for a clear definition of virtual currency.
The results of the committee’s meeting will be incorporated into a further draft of the Act, which will then be reviewed by another committee of the ULC in early 2017 for stylistic consistency with the ULC’s other regulations. There will likely be another drafting meeting in late March 2017 and the committee is hoping to have the final draft ready for approval by the Commission at its annual meeting in July 2017.
The ULC’s efforts towards a comprehensive virtual currency regulation are crucial in light of conflicting legal precedents and individual state licensing requirements. The Act will hopefully allow the states that adopt it to provide consistent, necessary guidance to virtual currency businesses.