One month ago, the Connecticut General Assembly approved new regulations for virtual currencies. They were signed into law by Governor Dannel Malloy on June 19, capping a 4-month review process.
The rules are part of Substitute House Bill No. 6800, “An Act Concerning Mortgage Correspondent Lenders, the Small Loan Act, Virtual Currencies and Security Freezes on Consumer Credit Reports.”
Like most states moving towards regulation, the rules, for the most part, adapt the state’s Money Transmission Act to virtual currency, marking it as an equivalent of money or monetary value. This, as opposed to the route taken in New York State, where the BitLicense imposes specific requirements on businesses dealing in virtual currency, in addition to standard money services business rules.
Each state, however, has its nuances, and Connecticut is no exception. Several clauses leave matters to the discretion of the Department of Banking. These clauses are only applicable to virtual currency, due to its perceived riskiness. In this respect, it has some commonalities with the BitLicense rules, which have been heavily criticized by industry players as unduly onerous.
Applicants for a local license will have to specify whether their money transmission activities will include virtual currency. Such a business type is then subject to different criteria. Among them is the possibility that if their business is too risky, their application may be rejected. Sec. 7. Section 36a-600 (7)(c) states:
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“Notwithstanding the provisions of this section, the commissioner may deny any application of a person who will or may engage in the business of transmitting monetary value in the form of virtual currency if, in the commissioner’s discretion, the issuance of such a license would represent undue risk of financial loss to consumers, considering the applicant’s proposed business model.”
In (d), the commissioner’s discretion is taken a step further:
“The commissioner may, in the commissioner’s discretion, place additional requirements, restrictions or conditions upon the license of any applicant who will or may engage in the business of transmitting monetary value in the form of virtual currency, including the amount of surety bond required by section 36a-602, as amended by this act.”
A regular money services business must file a surety bond ranging between $300,000 and $1 million. But for virtual currency businesses, “such bond shall be in a principal sum as determined by the commissioner and shall be calculated reasonably to address the current and prospective volatility of the market in such currency or currencies.”
The rules are likely to draw the ire of Bitcoin businesses looking to operate in the state. In addition to potentially treating Bitcoin businesses with greater stringency, many in the community will not appreciate how decisions will be centralized to the discretion of a single person, especially if their attitudes towards virtual currency differ.