Effective January 1, 2020, Rhode Island will regulate virtual currency under its money transmission laws.
Forty-nine states and the District of Columbia regulate money transmission. Almost all of those jurisdictions have different definitions and exemptions that determine whether their laws apply to certain businesses or activities. The result is a complex, patchwork regulatory landscape. Further complicating the issue is the question of whether virtual currency is considered money or monetary value for purposes of current state money transmitter laws.
States have started to answer this question. Through official guidance, regulatory agency opinion letters, and/or legislation, states are clarifying whether their laws apply to the sale, exchange or transfer of virtual currency. On July 15, Rhode Island’s governor signed House Bill 5847, which clarifies that certain virtual currency business activities will be subject to the state’s money transmitter regime. The measure also adds provisions to the current law related to currency transmissions and licensing requirements.
What Activity Is Regulated?
The bill generally requires a person engaging in “currency transmission” for a fee or other consideration to be licensed with the state. “Currency transmission” explicitly includes “maintaining control of virtual currency or transactions in virtual currency on behalf of others.” The bill provides several exemptions from licensure requirements, including for persons using virtual currency for personal, family or household purposes.
For purposes of the bill, virtual currency means “a digital representation of value that: (A)[i]s used as a medium of exchange, unit of account, or store of value; and (B) [i]s not legal tender, whether or not denominated in legal tender.” The definition excludes:
- rewards or affinity program value that cannot be taken from or exchanged with the merchant for “legal tender, bank credit or virtual currency;”
- digital representations of value used within online games;
- “[n]ative digital token used in a proprietary blockchain service platform;” and
- gift certificates, gift cards, and general-use prepaid cards.
The bill requires licensees engaging in virtual currency business activities to provide certain specified disclosures to residents. Further, licensees must create and maintain certain compliance programs, including business continuity and disaster recovery programs, anti-fraud programs, anti money-laundering programs and information and operational security programs.