Sure this adds a bit of Red Tape and extra reporting which is a hassle and will probably cost companies more money, however this isn't the death blow many people are talking about. Many of the articles talk of how regulation kills the soul of an entrepreneur, and though this is true, this ruling isn't the deathblow many articles are making it out to be.
Filing with Fincen as a Money Transmitter isn't a big deal. It can be done in less than 10 minutes, to my knowledge there is no approval process, it's simply filling out the form. By filling out the form you are agreeing to follow certain reporting requirements and agreeing to keep records for a specificed amont of time, typically 5 years.
The larger issue and the one this article is really getting at is the State regulation. Where as filing as a MSB-Money Transmitter with Fincen takes just minutes and costs you nothing, typically each state requires their own license. The Fincen regulation is about stoppoing money laundering where as the states registration is about "consumer protection" as the state would call it, but is essentially just a money grab.
For a Bitcoin business, they are most likely going to operate in all 50 states. I belive all but 2 or 3 states license or regulate Money Transmitters. This means you must get 46 or 47 different licenses for each state. The application fees alone can run anywhere from a few hundred Dollars to as much as $2500, and that's just to apply, no gurantee you will even get the license.
On top of the license; you typically also need to have an audit done on your financials, an audit done on your AML or anti-money laundering policy, as well as creating an anti-money laundering policy if you don't already have one. This will run you a few thousand Dollars.
Next you typically need a bond in each state to be a Money Transmitter, a bond in each state will typically run you a few grand per million the bond is for, again, that's if you can even get a company to give you a bond because you deal in Bitcoins. Many will flat turn you down.. Typically most states bonds will cost you 2k-5k.
Most states also require you show a certain amount of money in the bank, liquid cash. This could be something like $35,000 on the low end all the way up to hundreds of thousands of Dollars, another hurdle to keep upstarts and anyone but a large well funded company out.
And once you jump through all these hoops be prepared for the various states licensing departments and regulators to either loose your applications a few times, or tell you the supporting documents and audits you supplied are not sufficient, and require you to pay more money to get more done.
After jumping through all these hoops you may be lucky enough to be licensed as a money transmitter in a state. Good news, only 45 left to go.
So where is the bright side you may ask? The bright side is that the Federal License or Money Transmitter MSB filing with Fincen is the most important part. The states money transmitter licensing is for lack of a better word a $h!t show. Typically the regulators don't even know the laws of their own state. The laws are actually not even really relevant as regulators often choose to either ignore their own laws or require stuff above and beyond what the law calls for and there's not really anything you can do as they are the regulator and have the final say.
The good news is that in most states the department which issues money transmitter licenses also isues licenses for dentists, cosmotoligists, food service workers or sanitation licenses among others.
On top of that most of these states have literally one or two guys handling the licenses for all theses areas which is why the CoinDesk article was correct in stating it can take as much as 18 months or longer to get a license.
What does this mean for Bitcoin businesses? Many lawyers would probably urge Bitcoin businesses to go the route of asking for forgiveness rather than permission. What does this mean exactly? It basically means ignore the states laws and licensing and run your business until a state finds out about you and comes after you.
Because the states departentts are somewhat of a joke and understaffed; assuming you don't have any complaints against your business; they probably will never wind up comming after you. If they do, you deal with it when they come after you and work out a settlement with them, and work on getting your license from that point. Keeping in mind the process will probably drag out for months or even years before you actually have to pay a fine.
Although many Bitcoin businesses are startups without a lot of cash, even large companies struggle keeping up with these regulations and licensing. Square Payments up until recently and possibly even still to this day has Cease and Desist orders against them from various states, and somewhat recently had to pay a large fine in the state of Florida.
Though I havn't verified this story for myself and am having trouble finding documents to back this up, it's been rumored even Paypal who today is a giant company didn't even have all their licenses at the time of their IPO some years back.
Moral of the story is if large companies can't even keep up with licensing and regulation how can a small upstart? It's also unreasonable that a small business would need to have probably at a minimum a half million Dollars just to get everything in line and apply for a license to run an internet business which served every state, and after spending all that money there is no gurantee you will get all those licenses.
Hopefully the increased popularity of Bitcoin and Bitcoin businesses will force states to offer some type of streamlined licensing process or at the very least force states to offer receiprocity meaning if you get a license in your home state other states will honor that license and save you the time, money, and hassle of doing the same thing 45 more times. This would be the smart common sense way of doing things but seeing as how government avoids intelligent common sense decisions like the plague it probably won't happen so for the meantime Bitcoin operators pretty much have two choices, close up shop or ignore state registration and licensing and operate their business until states find them and seek them out.
In all honestly banking is going to be a much bigger problem for these Bitcoin companies than state registration or licensing is. If anyone doubts this I challenge you to pickup the phone and call a few banks and ask if they offer MSB or money service business accounts. They are all but non-existant these days which basically leaves Bitcoin Companies, Check Cashiers, and Currency exchanges among other businesses pretty much without any options for banking. That's the next bridge Bitcoin companies must face, however seeing as how Bitcoin is being accepted by more and more companies these days that may not present a problem for them.
FInal Thoughts...
- Fincen isn't the bad guy here. It's the states over burdensome regulation that is the issue. Fincen is simply trying to stop money laundering and terrorist financing.
- The states do this in the name of "consumer protection" however they didn't seem to worried about consumer protection when it came to the big banks, predatory lending and the housing crisis so why get in the way of entrepreneurs and innovation since they don't do their job anyway.
- Hopefully this will spur some discussion and get states to offer reciprocity in their money transmitter rules/laws.
- And lastly, hopefully this opens up banking to a huge sector of the economy which currently has few if any banking options.
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