8 August 2020

A company or an individual serving as a money transferring service or money transmitter provides payment services and fund transfers. The ones who receive cash for transmitting purposes mostly by electronic transfer or wire fax also fall under money transmitters. So, in the crypto world, what is a money transmitter?

Money Transmitters Act to Configure Bitcoin Transactions?

Bitcoin’s money as a transmitter operating realm is different from the other digital currencies. Individuals investing in Bitcoin are not a money transmitter, but when you exchange it to fiat currencies or other digital currencies, you are considered one.

The proliferation of Bitcoin currency allowed us to secure cross border currency with low cost, seamless transactions. The U.S. treasury department, FinCEN (Financial Crimes Enforcement Network), manages the processing, collection, dissemination, and the monitoring of suspicious activities, among other operations. It also protects financial data and enforces transmission laws in the state money web.

The Act

In the first quarter of 2013, FinCEN announced that it would consider both Fiat and cryptocurrencies in the same way when it comes to money transmission laws. Below are few of the differentiations they have set to consider who money transmitters are and who are not.

Money Transmitter Not Money Transmitter
Any company that participates in exchanging Fiat currency to any cryptocurrencies Individuals using cryptocurrencies for only investment purpose
Payment processors that accept cryptos from their client’s customers and convert them to Fiat money for their clients. Companies or Individuals who accept payments in the form of digital currencies for the goods and services they offer
Companies that accept cryptos from one of their customers and send them to other customers for any given purpose. These entities are not exempted from being money transmitters just because they do not deal in fiat money.

 

What is BitLicensing, and Why Is It Required?

To use Bitcoin in exchange for fiat currency, you need to own a cryptocurrency license for money transmitter integration. Each business estate has a set of rules for money transmission licensing. The Financial Crimes Enforcement Network enforced mandatory federal regulations for licenses. The purpose of this is to prevent fraudulent activity and money laundering while transmitting money.

When Is It Required?

Bitlicense is not required if the Bitcoin is exchanged for goods or services only. But if you are exchanging Bitcoins itself or converting it with other digital currency for business purposes, then it is mandatory to own a money transmitter license. The payment intermediator needs licensing while accepting Bitcoins and paying back in other authorized currency.

Bitcoin Currency Ecosystem

By the law, a money transmitter needs to have a prerequisite combination of licensing payment, requirements net worth, employment history, submission to examinations,  audited financial reports, business experience, fingerprints, background checks, and disclosure of bankruptcy proceedings.

The financial institution includes dealer, bank, and broker under the supervision of federal bank authority to serve for money services business to support the financial activity categories like foreign exchange dealings, traveller checks issue, cashing and prepaid accessibility for transmitting money. The transmitting Bitcoin intermediary between consumers and sellers are ATMs registered by FinCEN. The ATMs allow users to access their accounts to convert Bitcoin to fiat currency or fiat currency to Bitcoin.

In Summary

Bitcoin, as e-money has created media buzz around the world because of its financial potential and perceived worth. Countries are putting mass efforts toward passing Bitcoin currency regulations. Yet, the United States doesn’t consider it as a legalized currency but just a medium that can be exchanged, purchased, and sold. Concerning the Bitcoin businesses, the regulatory framework is very confusing and complex since the guidelines are not clear for power holders or lead regulators. Although the federal government didn’t legalize the Bitcoin tender, there are still money transmission laws impacting currency businesses.

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Edmund McCormack
Tech industry veteran and blockchain technology investor. Simplifying cryptocurrency for almost a decade.

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