Thursday, October 6, 2016

Bitcoin Provisions in the North Carolina Money Transmitter Act


The North Carolina Money Transmitter Act was recently extended to cover bitcoin traders with House Bill 289, signed in July 2016 by State Governor Pat McCrory. Deemed as the 'virtual currency law' in the state, the bill introduces a legal framework for regulating bitcoin and blockchain technology.

While the legislation had to go through an elaborate and long discussion period, including the feedback of various stakeholders, the bill is seen today as business-friendly by many. It brings legal clarity in the field of virtual currencies in North Carolina, but does not open venues for over-regulation.

The Chamber of Digital Commerce and other involved parties contributed to the formulation of this addition to the act. They have also expressed satisfaction with the outcome.

Naturally, this definition has been the first step towards regulating the virtual currency field in North Carolina. According to the act, bitcoin traders will fall in the category of money transmitters and as such, they will have to obtain a license. There are a number of exempt options such as being the agent of a payee, but they need to be duly demonstrated.

A license will not be needed from virtual currency miners, as well as blockchain software companies for a number of services such as smart contract platforms, smart property, multi-signature software and non-custodial and non-hosted wallets.

As commented by bitcoin advocates, the legislation is seen as matching the needs of the newly emerging industry. It distinguishes between businesses using virtual currency versus those using distributed ledgers. Additionally, the law clarifies which types of activities trigger the licensing requirement for blockchain technology companies.
The licensing process

The licensing application process is also defined in the act. Money transmitters will have to follow the procedure set via the Nationwide Mortgage Licensing System and will be licensed by the North Carolina Commissioner of Banks.

The most important documents that need to be presented during the licensing include business entity paperwork, active money business services registration with the United States Department of Treasury Financial Crimes Enforcement Network, business plan, anti-money laundering program documents, and audited financial statements, among others.

The minimum net worth for licensing is set at $250,000 and it should be kept at all times. The application fee is $1,500. There is also an annual assessment fee of $5,000 for transmission volumes below $1 million. Above that amount, the assessment fee is calculated as a percentage of the transferred volume on top of the basic annual assessment fee of $5,000.
Bond requirements

One of the new elements introduced with this addition to the act is the money transmitter bond licensing requirement for bitcoin traders. This special type of surety bond is needed in order to bring up the level of security in the business. The function of the bond is to guarantee that bitcoin traders will handle their clients' virtual currency assets according to the applicable laws.

The bond amount that traders need to post depends on the volume of money transmissions per year. The standard bond requirement is $150,000 for money transmission volumes below $1,000,000. For volumes between $1,000,000 and $5,000,000, the bonding requirement is set at $175,000.

The next level is set at $200,000 for traders with an yearly volume between $5,000,000 and $10,000,000 per year. For volumes between $10,000,000 and $50,000,000, the bond needs to be $225,000. Finally, if the transmission volume is above $50,000,000, the bond requirement is $250,000.

In order to get bonded, virtual currency traders will have to apply for a money transmitter bond with a surety provider. After examination of their financial profile, the surety sets a bond premium, which is a percentage of the required bonding amount. Stronger finances and solid business stats are key to lower bond costs for money transmitters.

Accepted rather positively by both businesses and legislators, the bitcoin addition to the Money Transmitter Act is bound to bring the necessary level of regulation to virtual currencies and blockchain technology in North Carolina.

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