The Uniform Law Commission (ULC), a nonprofit dedicated to creating consistency among US state laws, is set to discuss a draft version of a model law meant to guide states in the formation of regulation for virtual currencies such as bitcoin this week.
Set to take place from 9th to 11th October at the Hyatt Regency in Washington, DC, the three-day event will bring together the ULC‘s Study Committee on Alternative and Mobile Payment Systems for discussions on specifics of the bill’s current provisions, including its recommendations to state legislatures on capital requirements and the cost of licensing.
Originally tasked with considering the need for more uniform state legislation on alternative and mobile payment systems in 2014, the group eventually chose digital currencies as its area of emphasis. Ultimately, the first version of the draft bill puts forth a set of initial recommendations for how entities operating “trusted intermediaries” in the digital currencies space should be licensed across the US so that requirements are more consistent.
Pillsbury Winthrop attorney Marco Santori, who will be in attendance at the meeting, suggested the goal is to create a law that would do for digital currencies what the Uniform Money Services Act (UMSA) did for money transmission laws.
Santori told CoinDesk:
“That’s how we got the 20 or so laws we have today on money transmission. The same thing is happening with virtual currencies now. It’s important, it’s not something to ignore. It’s a great opportunity to actually write the laws on these issues.”
Covered entities include digital currency converters, exchanges, gateways, payment processors and ATMs, according to the draft, though three article subsections are reserved should additional sub-industries need to be considered before the bill’s completion.
The current version suggests the ULC intends the final version of its bill to mirror draft regulation released by the Conference of State Bank Supervisors in September 2015, however, the ULC noted differences between the two sets of recommendations.
For example, the ULC draft document has included a provision that calls for states to enact “onramp options” for smaller startups, such as the conditional licensing established in New York by its BitLicense regulation enacted in June 2015.
Elsewhere, the ULC draft made clear it has yet to resolve its opinion on a number of issues, including the types of permissible investments digital currency firms can use as a means to hold corporate funds, and how such entities could appoint authorized delegates, or other businesses that perform money transmission services under another entity’s license.
As with all of the provisions in the draft bill, the ULC may revisit deliberations on any issue included in the initial draft, with the goal of releasing the final recommendations in 2016.
Once submitted for approval, the “Regulation of Virtual Currencies Act” would then need to be approved by the ULC for an annual meeting, with a final vote taking place in which a majority of the 50 states approve the measure for enactment.
Reciprocal licensing
Perhaps most notable among the ULC’s proposals is a section on reciprocal licensing, which would allow digital currency businesses governed under the law to engage in services without going through the full licensing process in other states.
Such an agreement would require an unspecified fee, the completion of a license application form and a certification of license history by the applicant, but could potentially establish a framework for organizations that have obtained a BitLicense in New York to more easily become operational in other US states.
The measure could be viewed as positive for startups in the eyes of industry advocates, many of whom have been vocal about how the high costs of industry-specific licensing could effectively price startups out of operation should they be mirrored by other states.
Under the current bill, state commissioners who grant reciprocity and issue a license to a business would need to do so within 30 days, the draft law reads. As part of the arrangement, state commissioners would, the bill suggests, also be able to waive duplicate bonding, net worth and other capital mandates.
Initial feedback from Santori and other industry veterans indicates that the draft repeats language often previously attacked as vague by technology proponents, suggesting that more cumbersome parts of the BitLicense and other existing model regulations could be cemented across the US should the current version be enacted.
“As its drafted now, it’s overly broad and brings in people with no business being regulated,” Santori said. “It repeats a lot of mistakes from the early BitLicense.”
Impetus to act
The ULC release marks the end of a process began in late 2014, when the committee called for draft legislation to be prepared and released no later than July 2016.
At the time, the committee called for the ULC to expedite its draft regulation process citing the increasing number of brands and consumers seeking to engage in digital currency transactions, as well as actions by groups such as the Conference of State Bank Supervisors to issue similar guidance to state regulators.
The agency said its goal was to strike a “balance between a law enacted in 53 jurisdictions but flexible enough not to frustrate innovation”.
“Because virtual currencies do not enjoy comparable statutory or regulatory underpinnings to other payments systems, the states are under pressure to act,” the group wrote.
Further highlighting the need for swift action, the group argued, was that California, New York, North Carolina, Kansas and Texas were already considering enacting regulatory schemes, which it suggested could be disparate in their composition.
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