State-by-state Licensing For Crypto And Payments Firms In The Us Just Got Much Easier (#GotBitcoin?)
New money transmitter licensing promises to roll 40 states into a single exam and license. State-by-state Licensing For Crypto And Payments Firms In The Us Just Got Much Easier (#GotBitcoin?)
An organization of state regulators in the U.S. has announced a new streamlined process for money transmitter licensing that will save large operators — including firms — from getting separate licenses in every state.
The Sept. 15 announcement from the Conference of State Bank Supervisors (CSBS) has set out parameters for state licensing that will involve a single exam administered by examiners from across the country. Nationwide payments firms, meaning those operating as money transmitters in 40 or more states, will be able to get a single license to operate throughout the U.S.
There are currently 78 such firms in the U.S. A representative for CSBS confirmed to Cointelegraph that “Companies that are licensed in 40 or more states are automatically rolled in.”
Though the representative for CSBS was unable to name the companies involved, she specified that ‘It includes brick-and-mortar firms, it includes cryptocurrency firms.” A scan of the Nationwide Multistate Licensing System confirms that Coinbase, for example, is at registration in exactly 40 states and will be one of the notable beneficiaries of the new system.
The push to nationalize licensing for payments has attracted attention from many, including the Office of the Comptroller of the Currency. Acting head of the OCC Brian Brooks told Cointelegraph that “I congratulate CSBS and the states on recognizing what we have been saying for years that for national financial service businesses, it makes little sense to have a patchwork of regulation and supervision. While the efforts alleviate the inherent challenges facing a system based on 50 state laws and licensing regimes, only federal law and the uniform regulatory framework it provides fully addresses these issues.”
“That 40-state threshold is where this program is starting, not necessarily where it will stay in the future,” the CSBS representative said.
In response to the announcement, Head of New York’s Department of Financial Services Linda Lacewell tweeted that “States acting together can streamline oversight to reduce burdens on industry while protecting consumers and safety/soundness.”
The CSBS hopes that under the new system “regulators will gain more insight while also freeing up state resources.” The changes will take effect in 2021.
A Storm Is Brewing Between State Regulators And The OCC Over Fintech Licensing
A major network of state banking regulators is renewing its attack on the OCC’s moves to register non-depository institutions.
A leading association of state banking regulators is trying to put the U.S. national banking regulator in its place on the issue of fintech registration.
Per a Dec. 22 filing, the Conference of State Bank Supervisors, or CSBS, says the impending approval of Figure Technology’s bank charter a bridge too far. Figure operates blockchain-backed lending and investment services.
It announced its application to the Office of the Comptroller of the Currency for a charter at the beginning of November. At the time, CEO Mike Cagney noted the relative convenience of a national charter, saying:”we’ll have over 200 state licenses next year without such a charter.”
The OCC, which is the Treasury office responsible for national banks, first floated the idea of special purpose bank charters for fintech firms back in 2016 under then-Comptroller Thomas Curry.
State regulators including the CSBS and New York’s Department of Financial Services, or NYDFS, immediately dogpiled the proposal as operating in defiance of the definition of “bank,” as well as in overstepping the OCC’s own charter. The CSBS, for instance, resolutely refers to the OCC’s work as “the Nonbank Charter Program.”
From the perspective of the CSBS, the situation only got worse in July of 2018, when then-Comptroller Joseph Otting said the OCC was open for applications. CSBS filed another suit later that year.
The court ultimately dismissed the case on the grounds that: “CSBS continues to lack standing and its claims remain unripe.” In that decision, however, the court attributed that “unripeness” to the fact that no fintech had yet applied for a charter, much less received one.
A month later in the final judgment in the NYDFS case, a Manhattan judge found that the OCC’s statutory authority “is set aside with respect to all fintech applicants seeking a national bank charter that do not accept deposits,” dealing a blow to the OCC.
NYDFS Taps Former DOJ Attorney As Deputy Virtual Currency Chief
The former Department of Justice trial attorney has been with the New York State Department of Financial Services for eight years.
Debra Brookes’ new role with the New York State Department of Financial Services may suggest more of a focus on regulation through enforcement.
An attorney who has been working at New York’s Department of Financial Services, or NYDFS, since 2013, Brookes has served in key roles in the department’s Enforcement Division, Financial Frauds and Consumer Protection Division, and Consumer Protection and Financial Enforcement Division before becoming deputy virtual currency chief for its Research and Innovation Division in March.
Prior to that, she worked as a trial attorney with the United States Department of Justice for five years, leading and participating in “complex white-collar investigations.”
Though the former DOJ attorney’s views on crypto have not been widely reported, she did contribute to a NYDFS report about the July 2020 hack on Twitter, which resulted in many high-profile accounts sending tweets fraudulently promising followers that they would double Bitcoin (BTC) payments sent to a specific address.
That report concluded that “cryptocurrency companies had robust programs around cybersecurity, fraud-prevention, and anti-money laundering programs.”
With regulatory authority over many crypto exchanges and firms, the NYDFS has approved Goldman Sachs-backed crypto custodian BitGo to operate as an independent custodian in New York.
The regulator has also granted BitLicenses — digital currency licenses that allow firms to do business with customers and companies based in the state — to both global crypto payments processor BitPay and institutional cryptocurrency exchange Bakkt.
Brookes works under Jon Blattmachr, who has been the NYDFS’ virtual currency chief since October 2020.
New OCC Chief Signals Greater Caution On Crypto
“We created an Office of Innovation, updated the framework for chartering national banks and trust companies, and interpreted crypto custody services as part of the business of banking. I have asked staff to review these actions,” Acting Comptroller Michael Hsu said.
The U.S. Office of the Comptroller of the Currency (OCC) will review its crypto-related guidance issued over the past year, its new chief said.
Michael Hsu, the new acting comptroller, said in prepared remarks that he requested a review of all of the federal bank regulator’s pending matters, interpretative letters and guidance, including issues around digital assets and cryptocurrencies.
Much of the OCC’s crypto guidance was issued under the administration of former Acting Comptroller Brian Brooks, and marked what seemed like a watershed moment for the crypto industry’s acceptance from the broader banking sector. Brooks now leads Binance.US.
“At the OCC, the focus has been on encouraging responsible innovation,” Hsu said. “For instance, we created an Office of Innovation, updated the framework for chartering national banks and trust companies, and interpreted crypto custody services as part of the business of banking. I have asked staff to review these actions.”
Hsu said that he intends to keep an open mind but is “committed” to ensuring banks remain safe for consumers.
“My broader concern is that these initiatives were not done in full coordination with all stakeholders. Nor do they appear to have been part of a broader strategy related to the regulatory perimeter. I believe addressing both of these tasks should be a priority,” Hsu said.
Hsu will testify before the House Financial Services Committee on Wednesday in a hearing that will include all of the U.S.’ federal bank regulators.
OCC’s Crypto Rethink
The hearing memo also discusses digital assets and the OCC’s crypto-related actions under Brooks’ leadership.
“Technology is rapidly affecting the financial system, with online lenders, payment processors, and other fintech companies increasingly growing in market share. Consequently, many of these companies desire a national charter that eases the state-by-state burden and allows them to perform bank-like activities, with the OCC and the FDIC in particular allowing firms to engage in banking activities while being subject to less regulations and supervision.”
Still, while Hsu sounded cautious about some of these actions, he noted that fintech firms are not going away.
“I will expect any fintechs that the OCC charters to address the financial needs of consumers and businesses in a fair and equitable manner and support the important goal of promoting the availability of credit,” he said.
“Recognizing the OCC’s unique authority to grant charters, we must find a way to consider how fintechs and payments platforms fit into the banking system, and we must do it in coordination with the FDIC, Federal Reserve and the states.”
This year, the OCC has granted three crypto-related firms trust charters: Anchorage, Protego and Paxos. While Brooks was still at the regulatory agency when Anchorage received its trust charter, the other two were granted after his departure.
In a statement, Kristin Smith, executive director of the industry lobbyist Blockchain Association, said:
“It’s not surprising that a newly appointed Acting Comptroller would review recent policy decisions upon showing up to the job. We are encouraged by Acting Comptroller Hsu’s nod to the importance of financial innovation, and we hope to be a resource to him in his new position.”
Hsu’s remarks come a day after the OCC announced that Chief Counsel Jonathan Gould, who signed many of these interpretative letters, would be departing the regulatory agency.
US FDIC Seeks Insight On Banks’ Role In Cryptocurrency Markets
The FDIC issued a request for public input to get more information on the industry and consumers’ interests in the market.
The United States Federal Deposit Insurance Corporation is looking for information and public comments on banks’ cryptocurrency-related activities.
The FDIC is the major provider of deposit insurance to U.S. commercial and savings banks, originally created to address bank runs during the Great Depression.
On Monday, the FDIC officially announced a request for public input to get more information on the industry and consumers’ interests in the market as well as the role of banks in the digital asset ecosystem.
“Banks are increasingly exploring several roles in the emerging digital asset ecosystem, such as being custodians, reserve holders, issuers, and exchange or redemption agents; performing node functions; and holding digital asset issuers’ money deposits,” the FDIC stated.
The corporation is particularly looking to improve its understanding of digital asset use cases in financial markets and intermediation, as well as in settlement and payment systems. The FDIC is also seeking input on the risk and compliance management of insured depository institutions and their affiliates in conducting digital asset-related activities.
FDIC Chairman Jelena McWilliams noted that the public input will help the agency to better understand the market in terms of regulations.
“At the FDIC, we are laying the foundation for the next chapter of banking by ensuring we have a regulatory framework that allows responsible innovation to flourish. This RFI gives us an opportunity to gain additional insight into the market, and what role banks might play in the future,” McWilliams stated.
The agency’s interest in digital asset use cases for financial institutions comes as U.S. banks actively move into the crypto industry. In early May, investment bank Goldman Sachs launched a cryptocurrency trading desk, allowing institutional partners to trade derivatives products. Previously, Morgan Stanley added Bitcoin (BTC) exposure to 12 investment funds after announcing plans to offer crypto services to wealthy clients.
Nebraska Bill To Allow Banks To Offer Crypto Services Passes To Final Round
Nebraska could follow Wyoming and open its first crypto bank should the bill pass the final round.
Lawmakers in the U.S. state of Nebraska have taken another step towards passing a bill that will allow state banks to offer cryptocurrency services.
According to a May 19 tweet from Senator Julie Slama, the legislature called LB 649 has just passed to the final round of debate. She added that the bill establishes a statewide framework for cryptocurrency and digital asset banks in Nebraska:
“Excited for Nebraska to be a national leader in crypto!”
As reported by Cointelegraph earlier this month, the legislature was introduced by Republican Mike Flood in January. The bill aims to adopt the Nebraska Financial Innovation Act and create crypto asset depository institutions, in addition to providing for charter, operation, supervision, and regulation of these institutions.
According to the official timeline of events, the bill was advanced for enrollment and review on May 10, and it has now been adopted and passed to the final stage.
If passed, the legislature would make Nebraska the second U.S. state to formalize a charter for cryptocurrency-centric banks. Wyoming was the first state to do so, chartering its first crypto bank in September 2020.
Huge #CryptoNews – the Nebraska Legislature just passed LB 649 to the final round of debate!
Excited for Nebraska to be a national leader in crypto!
— Senator Julie Slama (@SenatorSlama) May 18, 2021
Senator Mike Flood introduced the Transactions in Digital Assets Act and Adopt the Nebraska Financial Innovation Act to the state’s 107th Legislature in January with the hope it could help the state benefit from technology and finance jobs.
At the time, Senator Steve Erdman reportedly said that the bill was not anywhere close to being in a form where it could pass, in response to skepticism from some lawmakers. Three months later the bill is a lot closer to passing much to the satisfaction of those in favor of it such as Senators Flood and Slama.
When the bill was introduced, Flood stated “This is a once-in-a-lifetime opportunity not only for my district but the state of Nebraska,” after chatting with an entrepreneur friend who decided to move into the cryptocurrency industry in Wyoming.
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