Project Name: Massachusetts Division of Banks (DOB) Blockchain Regulatory Review
Name(s): Denise Beighley
Weekly Update #1_
• www.Coincenter.org; This is an virtual currency industry trade group that provides research and education related to virtual currency industry issues. They offer multiple resources but the initial primary reference is the State Digital Currency Principles and Framework https://coincenter.org/entry/state-digital-currency-principles-and-framework
• Uniform Law Commission (ULC); WWw.Uniformlaws.org. This is a group of lawyers who draft model laws for states on various common issues. They took the State Digital currency principles and framework provided by Coincenter and drafted a model regulation that states could use to implement a state regulatory scheme for virtual currencies.
• www.CSBS.Org (Conference of State Banking Supervisors; this is an industry trade group of all the state banking regulators). They drafted a Model Regulatory Framework for virtual currencies in 2017. https://www.csbs.org/model-regulatory-framework-virtual-currencies
Most virtual currency businesses (VCBs), which potentially include exchanges, wallet providers, software developers, miners, and possibly others, are currently regulated under state laws that were originally intended to cover money transmitters such as Western Union. The key factor is whether the business has “control” of customer funds. They are required to be licensed, have key management members submit to background checks, submit to periodic examinations, and provide key protections for consumers. The failure to operate appropriately can result in fines or, worst case, the loss of their license or potentially even criminal charges.
Massachusetts currently only has a regulation for foreign money transmitters (businesses that send customer funds outside of the United States). We currently have a bill pending in the state legislature to amend Chapter 169 of the General Laws to include domestic money transmissions (receiving or transmitting funds within the United States); (House bill Number 924; https://malegislature.gov/Bills/191/H924) that apparently has been stuck in committee for the last 12 years.
Last week, CSBS published a new draft law that would cover money service businesses (MSBs), https://www.csbs.org/msblawcomments, which would potentially include VCBs, as well as other regular payment companies like Western Union and check cashers. This draft law is currently pending review by all interested parties, who have the chance to provide comments on the draft until November 1, 2019. The legal team in my office is currently reviewing the draft and will provide me a copy of their comments when the review is complete. This new regulation, if accepted by the DOB in whole or in part, could potentially require us to change our pending bill, or maybe add a new bill that covers the provisions in the MSB model law.
My office has published 4 “selected opinions” related to virtual currency to date; https://www.mass.gov/info-details/selected-opinions-of-the-division-of-banks-related-to-consumer-virtual-currency#past-opinions-of-the-dob-. The examples that were posted are all cases where we decided, based on the facts of the individual case, either that a license was not required, or we didn’t have enough information to make a decision. However, I have to follow up with our legal team to see what triggers require a license, which is a project for next week. For example, Coinbase is not listed in the National Mortgage Licensing System (NMLS); https://www.nmlsconsumeraccess.org/ as having a Massachusetts license, but they still let me open an account. On the other hand, Circle, has a Massachusetts foreign transmission license (FTL), like I would expect.
My preliminary research shows that there may be gaps in our state laws in the sense that we do not have a framework with the desired level of detail as described by the model laws recommended by Coincenter.org or even our own trade group, CSBS. I will update this analysis when I receive the response from my office on the draft MSB regulation, as this may address this gap, at least in part.
What Went Well
Received some preliminary information from my office on our current regulatory framework and the bill currently pending in the State House.
What We Learned
While the pending bill may be a step in the right direction, there are likely still other areas that need to be addressed with additional legislation
DOB legal team
- Meet with our CSBS Fintech contact to get an update on the CSBS Vision 2020 that attempts to address concerns related to cryptocurrency and blockchain. Would also like see if I can get involved in my office’s efforts in this area.
- Get more information from the DOB legal team as to the regulatory framework and determine any additional regulatory issues or recommendations that need to be addressed
- Continue to review the recommendations from Coincenter.org, CSBS, and ULC to see how they apply to our efforts