Vic Lance is the founder and president of Lance Surety Bond Associates, and a graduate of Villanova University and the University of Michigan’s Ross School of Business.
In this opinion piece, Lance provides an overview of upcoming legal changes in Washington state that affect the virtual currency industry.
If you are trading virtual currencies such as bitcoin in the state of Washington, there are new rules you will have to adhere to as of next month. Virtual currency operators in Washington need to comply with new money transmitter laws starting 23rd July.
Introduced with Senate Bill 5031, the direction taken by Washington follows similar moves in New Hampshire and other states.
Online operators will now have to obtain a license and comply with the money transmitter bond requirement, but with the new legislation, Washington lawmakers are also reducing the differences in the legal framework that applies for more traditional money transmitters and for virtual currency operators.
Here are the most important changes that affect virtual currency operators in Washington, and how you can prepare to meet the new requirements.
Washington money transmitter laws now apply for virtual currency
With the passing of Senate Bill 5031, virtual currency operators are placed under the jurisdiction of Washington money transmitter laws. They need to comply with the same rules as traditional money transmitters. This means they have to get licensed with the Washington State Department of Financial Institutions.
The new bill provides a definition of virtual currency as a “digital representation of value used as a medium of exchange, a unit of account, or a store of value, but does not have legal tender status as recognized by the US government”.
Operators who store virtual currency are now also required to provide a third-party security audit of their data systems as a part of their licensing.
Virtual currency licensees need to make a special list of disclosures to their clients, which are included in the newly added Section 21 (2) of the bill. They must:
- Clarify whether their products are insured and guaranteed for
- Detail their liabilities
- Note that transfers are irrevocable
- Provide a list of fees and charges.
All money transmitters also need to comply with a new rule regarding license and trade names. If they a name is similar to an existing one, licensure can be denied.
Changes in the money transmitter bond requirements
Besides adding virtual currency operators to the laws governing money transmitters in Washington, the new bill brings changes to one of the licensing requirements. All transmitters will now have to post a money transmitter bond, and, unlike before, no other option will be available for fulfilling this security requirement.
The surety bond is an extra layer of protection for transmitters’ customers. It guarantees their legal compliance. If they fail to follow applicable laws, affected parties can make a claim on the bond to receive a financial compensation for any damages.
The bond needs to be between $10,000 and $550,000. It is calculated on the basis of the transmitter’s dollar volume and payment instrument’s dollar volume for the previous year. In exceptional cases, the bond amount may be increased up to $1m.
As earlier, the bond must be continuous and should be active for the whole period of the licensure. It should cover at least five years after the licensed transmitter has stopped operations in the state. The bond amount represents the maximum penal sum that can be paid to harmed parties on proven claims.
With the new bill, Washington currency exchangers will also need to post a surety bond as a part of the licensing. It should be between $10,000 and $50,000. Its amount is based on the dollar volume of currency exchange for the previous year.
What are your thoughts about the new Washington money transmitter laws that affect virtual currency operators? Why not share your insights in the comments below?
Washington state capitol image via Shutterstock