As a nascent technology, regulation surrounding bitcoin has been a difficult issue for some regulators and policymakers. Despite these difficulties, North Carolina is a state that is promoting innovation and regulatory efficiency into its regulatory framework via the next generation of its Money Transmitters Act (“MTA”), introduced to the NC legislature last month. Reasonable states can disagree on whether regulation of certain virtual currency businesses is necessary in the first place, and if it is necessary, how to implement that regulation and with respect to whom. But to the extent states view money transmission regulation (or similar substitutes) as the right avenue for regulation, here’s why NC’s approach is a good one:
- NC’s MTA does not duplicate regulatory regimes. NC includes sensible modifications to its existing money transmission framework to allow virtual currency businesses to operate with certainty rather than create a separate licensing regime for virtual currency businesses. This allows young bitcoin companies to obtain one license rather than two, a process which would be largely duplicative. When spread across the US, this could mean the difference between needing 50 versus 100 licenses to operate throughout the country.
- In addition, NC’s MTA does not reinvent the wheel with regard to AML reporting. Instead, it relies on the federal framework FinCEN set forth for the entire bitcoin industry federally in 2013 by making it a “prohibited practice” for a licensee to fail to comply with the federal BSA, including maintenance of active registration with FinCEN. Both state and federal regulators have an interest in preventing financial crime, but duplicative or inconsistent Anti-Money Laundering (AML) rules will cause unnecessary inefficiencies or redundancies for both regulators and businesses.
- NC’s MTA provides a sensible and flexible framework for consumer protection. Storing or transferring cash on behalf of others is a significant responsibility. Coinbase believes protecting its customer’s money is critical to the success and future of its business, and we understand and support policymakers’ interest in encouraging and reinforcing strong consumer protection standards.The MTA includes provisions which demonstrate NC’s careful weighing of the balance between the needs for both consumer protection and room for innovation. For example, the legislation allows flexibility for providing exemptions to small startups or unique business models. In addition, the MTA gives the NC Bank Commissioner discretion to require a licensee to obtain insurance coverage to address cybersecurity risks inherent in certain business models. Because industry best practices are still in development, Coinbase applauds this flexible approach to cybersecurity.
- NC’s MTA allows for permissible investments to be denominated in virtual currency. In adding and clarifying definitions, the MTA provides that virtual currency businesses may hold virtual currency as a permissible investment to back outstanding transmission obligations in like-kind virtual currency. This approach makes sense, because if a company receives bitcoin for a customer or is instructed to transmit bitcoin to another payee, then the backing for that obligation ought to likewise be denominated in bitcoin.
Over the past several months, Coinbase has had the opportunity and privilege to discuss virtual currency with policymakers throughout the U.S. and abroad. In each discussion, Coinbase has focused on the following three principles to guide policymakers on virtual currency regulation: (1) avoid duplicative regulatory regimes, (2) protect consumers’ interests, and (3) prevent money laundering. These principles underlie our published formal responses to the proposed New York BitLicense regulatory framework (here and here), as well as our comments to the Conference of State Bank Supervisors (CSBS), who are crafting a model state regulatory framework for virtual currency businesses.
We want to thank the NC Bank Commissioner’s office for engaging with industry while modernizing its MTA and working to make NC a welcoming place for tech innovation. Please join us in thanking both Representative Ross and Senator Gunn, who sponsored the legislation in the NC House and Senate, respectively, and in urging the NC Legislature to move quickly in passing the legislation.