Since its quiet beginning, cryptocurrency and the infrastructure behind it has grown in popularity across several different industries. The use of virtual currency is not yet mainstream, but it has the potential to become a staple in economies around the world over the next several years. Because of the rise of alternative currencies, many business-minded individuals have set their sights on developing tools and platforms to help conduct transactions with cryptocurrency. For currencies like Bitcoin, online transfer sites, ATMs, and other money transmitting services have surfaced en masse.
While starting a cryptocurrency business may present unique opportunities for business owners, there are specific requirements that may need to be met and managed over time to operate legally. A money transmitter license is one of these requirements, although, not all cryptocurrency businesses need to go through this process. To know if a cryptocurrency business needs to get a license, it is first helpful to understand what a money transmitter license is, which businesses qualify, and the process of obtaining one if it is needed.
Understanding a Money Transmitter License
The federal government along with all but two states require that certain businesses operating in the financial services market obtain a money transmitter license, if they meet certain criteria. According to federal guidelines, a money transmitter license is required for businesses conducting more than $1,000 in transactions daily in any of the following categories:
- Processing money orders
- Preparing traveler’s checks
- Cashing checks
- Currency dealing or exchange services, including virtual currencies
- Providing money transfer services for customers
On a state level, the definition of a money transmitter may differ slightly, especially when it comes to the inclusion or exclusion of virtual currency businesses. However, should a business be deemed a money transmitter, a license is required to operate legally.
Does the Business Qualify?
Not all companies that handle virtual currency are required to have a money transmitter license. Unfortunately, the laws currently in place are not clear in many states or on a federal level when it comes to cryptocurrencies, therefore making it a challenge for businesses to know whether they qualify as a money transmitter or not. However, a few example scenarios may help provide clarity to businesses wondering if they qualify as a money transmitter and therefore need a license:
- If fiat currency is exchanged for virtual currency or virtual currencies are exchanged for other cryptocurrencies, a money transmitter license may be necessary
- If a business accepts cryptocurrency from one customer and then transmits it to another individual or business, a money transmitter license is likely required
- When a business operates as a payment processor that accepts cryptocurrencies from customers and payments are then changed to fiat currency, a money transmitter license may be required
Businesses that fall into any of the categories above based on the transactions they perform each day are likely to need a money transmitter license for cryptocurrency.
Getting a Cryptocurrency Money Transmitter License
When a money transmitter license is needed, there are several steps to take to ensure the process goes smoothly. First, business working with cryptocurrency as money transmitters must register with the Financial Crimes Enforcement Network, or FinCEN, as a money service business. This registration is simple and completed online. The business may also need to establish anti-money laundering policies as part of the federal guidelines for money transmitters.
The most arduous steps for getting a license as a money transmitter revolve around state requirements. Each state varies in what is needed, but generally, money transmitters will need to provide a detailed application, submit to a background check, and meet minimum net worth requirements. The application may require providing details about all owners of the business, its location, the nature of transactions, and business financial documents. Most states also require businesses to hold a money transmitter bond to help protect customers over time. These requirements can be cumbersome, but taking the time to check with the state where the business operates on what is necessary can ease the process.
Some cryptocurrency businesses do not need to have a money transmitter license to conduct business. For those that fall into the category of a money transmitter, it is necessary to know what will be required by the state to get a valid license before opening doors to customers. Failing to get a money transmitter license when one is indeed required can lead to serious consequences, including having the business shut down. Taking the time to understand what a money transmitter is, if a business qualifies as one, and how to get a license when it is needed helps a business in the long run.