On April 20, 2024, the Pennsylvania Department of Banking and Securities (“DoBS”) issued a policy statement (“Policy Statement”) to “clarify” that the Department’s interpretation of the term “money” in the Pennsylvania Money Transmitter Act (“MTA”) includes “virtual currency, such as Bitcoin.” The MTA provides in part that “[n]o person shall engage in the business of transmitting money by means of a transmittal instrument for a fee or other consideration with or on behalf of an individual without first having obtained a license from the department.’”
Thus, the Policy Statement means that virtual currency exchangers and related businesses doing business in Pennsylvania must become licensed as money transmitters. The effective date of the Policy Statement is October 15, 2024. Neither the DoBS nor the MTA define “virtual currency.”
The Policy Statement provides in pertinent part:
“Money” is defined in the act as “currency or legal tender or any other product that is generally recognized as a medium of exchange.” See 7 P.S. § 6101 (Emphasis added). Virtual currency is increasingly and widely accepted as a method of payment throughout the United States and can be used to purchase goods and services in thousands of physical locations and online. This statement of policy is intended to clarify to the regulated community that the Department includes virtual currency under its interpretation of “money” under the [MTA] and in Chapter 19 because virtual currency is a product that is generally recognized as a medium of exchange. In practice, this means that the Department expects that all persons engaged in the business of transmitting virtual currency by means of a transmittal instrument for a fee or other consideration will obtain a license from the Department, if they have not yet done so.
The “clarification” offered by the Policy Statement is in fact a reversal by the DoBS. In January 2019, the DoBS had issued guidance (“Prior Guidance”) declaring that virtual currency, “including Bitcoin,” was not considered “money” under the MTA. Therefore, the Prior Guidance stated that the operator of the typical virtual currency exchange platform, kiosk, ATM or vending machine did not represent a money transmitter subject to Pennsylvania licensure. The Policy Statement does not acknowledge the Prior Guidance.
The Prior Guidance in part explained why many virtual currency exchangers were not subject to licensure in Pennsylvania as money transmitters. We provide this prior language because it now presumably describes, at least in part, who will be subject to licensure as of October 15.
Several of the entities requesting guidance on the applicability of the MTA are web-based virtual currency exchange platforms (“Platforms”). Typically, these Platforms facilitate the purchase or sale of virtual currencies in exchange for fiat currency or other virtual currencies, and many Platforms permit buyers and sellers of virtual currencies to make offers to buy and/or sell virtual currencies from other users. These Platforms never directly handle fiat currency; any fiat currency paid by or to a user is maintained in a bank account in the Platform’s name at a depository institution.
Under the MTA, these Platforms are not money transmitters. The Platforms, while never directly handling fiat currency, transact virtual currency settlements for the users and facilitate the change in ownership of virtual currencies for the users. There is no transferring money from a user to another user or 3rd party, and the Platform is not engaged in the business of providing payment services or money transfer services.
The Prior Guidance provided a similar analysis regarding virtual currency kiosks, ATMs and vending machines.
The approach of the various states regarding whether virtual currency exchangers represent money transmitters subject to state licensure can represent a confusing and fractured regulatory landscape, sometimes made more difficult by vague and old statutes, and/or lack of administrative guidance. However, the general trend – as exemplified by this latest move by Pennsylvania – is to include virtual currency within the ambit of state money transmission laws.
State money transmitter law violations can become federal violations. As we repeatedly have blogged (for example, see here), it is a federal crime under 18 U.S.C § 1960 to operate as a money transmitter business without a required state money transmitting license. Further, administrators or exchangers of digital currency represent money transmitting businesses which must register with Financial Crimes Enforcement Network (“FinCEN”) under 31 U.S.C. § 5330 as money services businesses (“MSBs”), which in turn are governed by the Bank Secrecy Act and related reporting and anti-money laundering compliance obligations. Failing to register with FinCEN as a MSB when required is a separate violation of Section 1960, as exemplified by numerous enforcement actions in recent years (for example, see here).
