The Conference of State Bank Supervisors (CSBS) released their “Policy on State Virtual Currency Regulation” earlier today. The CSBS does not have a direct say in each states’ financial laws; however, the CSBS stands as the only coalition of state bank regulators in the country and has considerable clout and influence on state banks. One of the stated goals of the CSBS is to preserve the United States dual banking system. The proposed CSBS regulatory framework resembles the BitLicense regulatory framework already being attempted by the NYDFS.
The CSBS is accepting comments for the next 60 days and is seeking expert opinions on a number of key topics, as identified by the a special CSBS team. Recently, the CSBS formed the CSBS Emerging Payments Task Force that investigated the intersection of state laws and the budding digital currency phenomenon. The Task Force identified Consumer Protection, Market Stability, and Law Enforcement as concern areas raised by the unregulated use of virtual currencies. However, the CSBS noted that existing regulations can be applied successfully to cover companies and services using virtual currency; furthermore, they emphasized that their proposed state virtual currency regulation would not limit non-currency uses of block chain technology.
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The CSBS introduced their proposed regulatory framework as such:
To support the CSBS Policy on State Regulation of Virtual Currency and to promote consistent state regulation of virtual currency activities, CSBS has developed the following Draft Model Regulatory Framework (“Draft Framework”) for state virtual currency regulatory regimes. Because of the nascent and evolving nature of virtual currency business models, CSBS stresses the importance of applying the Draft Framework requirements in a manner that includes flexibility to adapt regulation and oversight to yet unforeseen changes – to address new risks and to facilitate and not inhibit continued innovation.
The CSBS also clarified their definition of virtual currencies, which is much more developed than the original FinCEN definitions of virtual currency. In fact, the CSBS all but classified virtual currencies as money in their definition.
For the purposes of this Policy Statement, virtual currencies are digital representations of value that can be a medium of exchange, a unit of account, and/or a store of value. Virtual currencies include, but are not limited to digital currencies and crypto-currencies such as Bitcoin. Virtual currencies have legitimate purposes and can be purchased, sold, and exchanged for goods or services or with other types of virtual currencies or with sovereign-issued legal tender such as the U.S. dollar. Virtual currencies may be centralized or de-centralized, convertible of non-convertible.
In the proposed state virtual currency regulation framework, the CSBS advocated for inter-state relations and information sharing to facilitate the entire system. The document stated: “a critical piece of such a system is the ability of states to share licensing and enforcement data in real time.” The CSBS also suggested ways that states could achieve the desired regulatory compliance:
States can apply activities-based regulations to virtual currency service providers through various means, including with laws and/or regulations written explicitly for virtual currency activities, or by interpreting or amending existing laws and regulations – for example, banking or other financial services laws – to include virtual currency in existing licensing schemes.
However, the CSBS did make the effort to note that individuals and merchants choosing to use virtual currencies, or potential non-monetary block chain technology applications, are excluded:
Virtual currency activities outside of the covered activities described above are not covered by the policy statement or by the regulatory requirements discussed in this document. In particular, this policy statement is not intended to cover the merchants and consumers who use virtual currencies solely for the purchase or sale of goods or services. Further, the policy statement is not intended to cover activities that are not financial in nature but utilize technologies similar to those used by digital currency. For example, a cryptography-based distributed ledger system for non-financial recordkeeping would be outside the scope of this policy.
View the full policy statement here.
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