Virtual currency, also known as digital currency, is a medium of exchange not authorized or adopted by a government. There are many different digital currencies being used over the internet, the most commonly known being a crypto-currency named Bitcoin. In Washington, virtual currency is included in the definition of “Money Transmission” in the Uniform Money Services Act (UMSA).
Washington State DFI has been among the forefront of state regulators when it comes to understanding emerging payment systems, including those that use virtual currencies. As part of a nationwide task force, DFI has worked with various payment system providers to create sound regulatory standards and practices within existing law. DFI strives to protect businesses and consumers while not unnecessarily impeding the development of new technologies that might improve existing payments systems or create alternative payment systems.
Washington is among a growing number of states that have sought specific legislation, adopted rules, or provided guidance on the regulation of virtual currency. These efforts have provided needed clarification to industry and have helped quell confusion about the legal requirements governing the use of this exciting technology in the financial sector.
In Washington, the existing definition of money transmission in the law includes virtual currency. DFI first clarified this and provided guidance to the industry in December of 2014 after more and more virtual currency business models began appearing in our license applications.
UMSA has a number of exclusions at RCW 19.230.020. For example, governments, banks, and credit unions are generally not subject to the Act. Also excluded are certain payment processors, and designated contract market boards of trade and registered futures commission merchants under the federal Commodity Exchange Act, among others.
When DFI receives an inquiry about licensing or a license application, or when the agency comes in contact with a company as the result of a complaint, we analyze the business model, seek additional information when necessary, and otherwise ensure our knowledge of the company’s activities.
When receiving our initial inquiry and information about Washington’s license requirements, some companies engaged in money transmission with business models based on virtual currency have elected to not offer, or discontinue offering, their services in Washington. Other companies begin the license process. We continually work to streamline our license application process, and we use the nationwide licensing portal which is specifically helpful to companies operating in more than one state.
While we do our best to fully examine a business model, if a company is not forthcoming or is not itself familiar with the law, potential exclusions may be overlooked. It is the company’s burden to identify and bring to our attention any potential reason for application of an exclusion. We cannot provide legal or business advice to companies – they must know or seek advice on how the law and potentially its exclusions apply to their business model.