Compliance with Regulations for Cryptocurrency Businesses

Cryptocurrency, also known as virtual money, digital tokens, and coins, has emerged as one of the most popular and adaptable means of conducting financial transactions. The bitcoin market is quickly increasing. However, there remains confusion over the handling of such digital currency offers and sales. Because of the growing popularity of utilising cryptocurrencies in financial transactions and to raise money, several governments have begun to adopt legislation to govern how bitcoin is used in commercial operations.

The United States has enacted a number of federal and state-level rules. Certain components of cryptocurrencies may be subject to money service industry laws, securities legislation, and state-specific restrictions. If your company centres on bitcoin, this article will help you ensure regulatory compliance while doing cryptocurrency-related activities.

Regulations for Money Service Businesses

If your firm includes transactions converting cash to digital assets or digital assets to cash, you must assess if some of these transactions may be subject to money service industry restrictions. Virtual currency exchangers and administrators are considered “money transmitters” and must follow the Bank Secrecy Act and its accompanying rules. Registration with FinCEN, an AML compliance programme, and a mechanism for filing BSA reports are some of the criteria.

In March 2018, the Financial Crimes Enforcement Network (FinCEN) published a guidance letter with instances of when the money transmitter restrictions would most likely apply. A money transmitter is, for example, an exchange that offers Initial Coin Offering (ICO) coins or tokens or trades them for other virtual currency, fiat cash, or other value that substitutes for currency. Similarly, a money transmitter is a developer that offers convertible virtual currency, including ICO coins or tokens, in return for another sort of value that substitutes for cash.

Securities Regulations

When a corporation wishes to sell coins and/or tokens, it must examine whether the coins are deemed securities under local law and, if so, what the securities law compliance obligations are. The bulk of bitcoin is treated as a security by the Securities and Exchange Commission (SEC), which follows the same rules that apply to equities. Some earlier cryptocurrencies, such as Bitcoin, are considered as commodities and are governed by the Commodity Futures Trading Commission in the United States (CFTC).
In the United States, if an ICO is organised in such a manner that it includes the offering or sale of securities or derivatives, some participants in the ICO may come within the jurisdiction of the SEC or the CFTC. The “Howey Test” is now being used to determine whether an initial coin offering (ICO) constitutes an offer or sale of “securities” under the Securities Acts. Even if it does, there are often registration exemptions that may be employed to ensure that the ICO is operated in accordance with local securities legislation.

Regulations at the State Level

It is critical to examine state-specific rules while picking which state to establish your bitcoin firm in. Although most governments remain mute or ambiguous about their position on crypto-related transactions, several states have adopted their own legislation at the state level. In Wyoming, for example, crypto to crypto is not considered money transfer. To perform virtual currency operations in the state of New York, cryptocurrency-related firms must get a BitLicense from the New York State Department of Financial Services (NYSDFS).