Guidance for Virtual Currency Business Licensees on Regulation Changes

**This is NOT legal advice, it is simply a general overview of the new and amended requirements for virtual currency licensees**

The rules at chapter 208-690 WAC, adopted under chapter 19.230 RCW (The Uniform Money Services Act), have recently been updated. The new rules become effective August 1, 2018. These changes, as they relate to virtual currency business licensees, are as follows:

1. 1) WAC 208-690-010 – Definition of “Virtual currency storage”
   The rule adds this definition to provide clarity about the activities relating to virtual currency storage discussed later in the rules.
2. 2) WAC 208-690-015(4) – Exemptions
   A person storing virtual currency on behalf of another that does not have the ability to use that virtual currency without the consent or permission of the actual owner is exempt from the Act. However, a person that may be exempt based on this subsection may not be exempt from the Act due to other activities it performs.
3. 3) WAC 208-690-030(7) – License Application
   This subsection requires that, in order to become a licensed virtual currency money transmitter in Washington State, an information security audit report be performed and submitted with the license application. The information security audit must be completed by a qualified individual or company and cannot be older than one year at the time of application. If the company is a startup, please contact the Department for more information.
4. 4) WAC 208-690-060(2) – Tangible Net Worth
   The rule already required a person providing virtual currency storage to maintain a minimum tangible net worth of $100,000. The subsection was amended to clarify that only those that conduct activity meeting the definition of “virtual currency storage” in WAC 208-690-010 must meet this standard.
5. 5) WAC 208-690-085 – Permissible Investments
   Subsection (4) requires a licensee transmitting virtual currency to hold and control, at a minimum, the same amount of each virtual currency type held on behalf of a consumer. For example, a licensee transmitting 100 Bitcoins and 50 Ether on behalf of consumers must be able to demonstrate it possesses at least 100 Bitcoins and 50 Ether. Evidence of control must be demonstrated through independent verification, which may be accomplished several ways, such as through encrypted signed messages on licensee-owned wallets, or a demonstrated process for verifying assets under management.
   
   Subsection (5) clarifies that if a licensee offers transmission services of both virtual currency and fiat currency, the permissible investment requirements must be met for virtual currency in Section (4), as well as for fiat currency in Section (3). For example, a licensee transmitting 50 Bitcoin on behalf of consumers, but also holding $5,000 USD in user wallets, must be able to demonstrate it possesses at least 50 Bitcoin in addition to demonstrating permissible investment amounts of at least $5,000 USD.
6. 6) WAC 208-690-205 – What disclosures must I provide to consumers?
   This new rule requires all licensees to notify the consumer prior to the transaction that fraudulent transactions may result in a loss of their money with no recourse. In addition, the rule allows licensees to provide disclosures electronically or on a physical document.
   
   This rule also requires certain disclosures from licensees that engage in virtual currency transactions. These disclosures include: information about fees and charges; whether the product is insured or guaranteed; the fact that most transfers are irrevocable; information about the licensee’s liability for certain transfers; and information about the increased risk of fraud or cyber-attack. The required disclosures may be provided together, but not in conjunction with other information not required in the rule. The disclosures must be made in a manner that is clear and easy to read; this means that the required information cannot be hidden in fine print.

Additional information

Copy of the adopted rules effective 8/1/2018

More information and clarification on virtual currency regulation in Washington State