Payments Law Tool Kit

Venable / 16 15 / Venable Cryptocurrency • Federal Anti-Money Laundering and Money Transmission – FinCEN has determined that administrators and exchangers who accept and transmit cryptocurrencies or who buy or sell cryptocurrencies are considered money transmitters subject to FinCEN’s money service business (MSB) regulations (absent a regulatory limitation or exemption). Providers of cryptocurrency payments services are required to comply with federal anti-money laundering requirements • State Licensing – A number of states regulate cryptocurrency payments companies through state money transmitter licensing regimes, or new frameworks specifically designed for cryptocurrency • Consumer Protection – The CFTC, Consumer Financial Protection Bureau (CFPB), and Federal Trade Commission (FTC) have issued public warnings to consumers to educate them on the potential risks of being defrauded while using or investing in cryptocurrencies Finally, while private cryptocurrencies continue to grow in scope and potential applications, a number of the country’s central banks, including the U.S. Federal Reserve, are exploring the pros and cons of issuing their own central bank digital currencies (CBDCs). Some of these proposals (which remain highly uncertain) envision CBDCs as a substitute for cash using the same underlying technology as cryptocurrency. In the event that the Federal Reserve were to adopt a CBDC, there would likely be significant impacts on legacy payments systems and market participants. The payments industry continues to evolve at a rapid pace. One of the best examples of this innovation is the development of cryptocurrencies as a potential new method of payment. A cryptocurrency (or digital or virtual currency) is a medium of exchange that is created and stored electronically. The exchange of cryptocurrency (such as a payment for a good or service) is typically facilitated through online digital wallets that use cryptography and distributed ledgers to preserve the security and record of the transaction. Although cryptocurrencies are exciting innovations, there has been limited adoption of the technology as a payment method. Most consumer, commercial, and wholesale transactions continue to be carried out through traditional payment rails. While cryptocurrencies have received significant media coverage, they are rarely used to purchase retail goods, and most merchants do not accept cryptocurrencies for payment. Still, the technology offers various benefits, and a number of traditional payments providers have begun to update their platforms to support cryptocurrency transactions. Against this backdrop, there continues to be a fragmentary legal framework that governs the new technology. There is no federal law that specifically addresses cryptocurrencies, and the decentralized nature of the technology means there is no private network to establish rules, including for managing fraud or consumer loss. Examples of the federal and state laws relevant to cryptocurrencies include: • Securities Regulation – Depending on how cryptocurrencies are operated and traded, there are various issues related to Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) regulation