One of the most baffling and unanswered questions in cryptocurrency legislation is whether trading bitcoin as an individual needs regulatory compliance, such as a cryptocurrency broker license.
Cryptocurrency enterprises that engage in money transmitter activities (the overwhelming majority) must follow state and federal standards to prevent financial crimes including money laundering and strengthen consumer protection efforts.
Traditional day traders are limited by rules and limitations, but what about crypto traders?
Most individuals say “mostly no,” but they have varying qualifiers. P2P commerce is not ambiguous. P2P traders are considered money transmitters, although exchange traders are not (and have been all along).
P2P vendors have long served as bitcoin money carriers. P2P traders are money transmitters subject to the same regulations as exchanges and kiosk operators.
Do they, however, need state-issued money transmitter licenses?
Given how quickly the regulatory environment is changing, it’s important in revisiting this subject and figuring out why this is the case, particularly as state legislation evolves and P2P trading compliance duties grow.
Who is required to have a money transmitter license?
Most bitcoin businesses are money services businesses (MSBs) and money transmitters. Such businesses must follow restrictions. They must register with Fin CEN and establish an AML program and procedures on the first day of operation.
Money transmitters must also follow state regulations. Federal and state regulations govern U.S. money transmitters. AML and Fin CEN meet government standards. Each state’s laws vary, but a money transmitter license (MTL) is nearly always required.
MTL requirements differ for each coin. Many states are classified as “no action” jurisdictions, which means that state authorities have not issued a formal decision on whether particular bitcoin firms need licenses.
Rather than presuming state MTL rules do not apply to their firm, businesses should cultivate connections with state regulators and get a formal finding of “no action” in writing.
Overall, crypto MTL is a mostly unresolved problem, therefore there’s no reason for P2P traders to be concerned, right?
There are a few issues here that make things more difficult. One is that depending on a “no action” finding is a poor business strategy, since state rules often change without notice or formal communication.
Your MTL status as a company or a trader is solely your responsibility. MTL management takes time and resources, particularly if your company operates in (or trades with people from) many states. As a result, many crypto companies are trying to find an MTL solution.
Is there any reason to believe that states of “no action” will change anytime soon? Absolutely.
Fin CEN has approached banks about their federal crypto exposure, hinting that inspections would look for crypto commercial activity. As banks tighten their crypto policies, justifying MTL’s “no action” decisions will become more crucial than ever.
Banks will have more questions about crypto businesses’ compliance.
Given the ambiguous legal situation of crypto enterprises (and crypto technology in general), P2P traders operate for their own benefit and aren’t organized or resourced as a corporation.
Fin CEN thinks they’re participating in money transfer, no matter what.
If you’re looking to get a crypto broker license, FintecHarbor can help you choose the best jurisdiction for your company.