CSBS and NASAA Issue Guidance on Virtual Currency

The Conference of State Bank Supervisors (CSBS) and the North American Securities Administrators Association (NASAA) have joined forces to issue a "Model State Consumer and Investor Guidance on Virtual Currency". The document can be found here.

CSBS is "the nationwide organization of banking regulators" from all 50 states and other territories which supervise around 5400 state banks. Their vision is to "be the recognized leader in advancing the quality and effectiveness of Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Read this Term and supervision of state banking and financial services." It is advising via the recently formed Emerging Payments Task Force, which is composed of nine state regulators and whose aim is to study virtual currencies and learn "how new entrants and technologies affect the stability of payment systems and the broader financial marketplace."

NASAA is a voluntary association consisting of 67 securities administrators from around North America. Their collaboration allows for cross-regional enforcement actions and information sharing.

The guidance aims "to assist state regulatory agencies in providing consumers with information about virtual currency as well as what factors consumers should consider when transacting with or investing in virtual currencies."

The 3-page document echoes much of the typical guidance offered by other bodies. In consumer terms, it explains what virtual currency is, its Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders Read this Term, connections to criminal activity, unregulated companies dealing in it, risks of theft and loss, and potential tax implications.

The document cites the Financial Crimes Enforcement Network's (FinCEN) recent ruling on the requirement for anyone transmitting "convertible virtual currency" to obtain a Money Services Business (MSB) license- even if they do not actually deal in fiat. This is a relatively stringent stance in requiring even exchanges dealing solely with crypto-to-crypto trading to undertake the cumbersome process of licensing. It also differs with most other jurisdictions which don't require such licensing unless dealing in some way with fiat.

In its March 18, 2013 guidance, FinCEN writes:

"The definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies. Accepting and transmitting anything of value that substitutes for currency makes a person a money transmitter under the regulations implementing the BSA."

A U.S. Treasury Official, David S. Cohen, warned that they are aware of many exchanges which are not yet registered, adding that “those that do not comply with these rules should understand that their actions will have consequences.”

Thus, consumers are advised by the CSBS/NASAA document to only deal with entities registered as an MSB.