This guidance was issued to “provide clarity and regulatory certainty for businesses and individuals engaged in an expanding field of financial activity.” Or put another way, FinCEN explains who exactly they intend to regulate.
FinCEN covers their bases here discussing “users, administrators, and exchangers… persons creating, obtaining, distributing, exchanging, accepting or transmitting” virtual currencies, both centralized and de-centralized, e-currencies and e-precious metals.
- FinCEN sees those dealing in virtual currencies as their regulatory responsibility
- Users, and Bitcoin miners seem to be exempt from regulation for the moment
- Buying or selling virtual currencies for “any reason” can make you a money transmitter and subject to FinCEN regulation
- Virtual currency dealers are NOT necessarily foreign exchange dealers
- FinCEN rules can also apply to those dealing in e-precious metals
- However, Prepaid Access rules do NOT apply to virtual currencies
FinCEN contrasts virtual currency to “real” currency and describes it as…
“a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency. In particular, virtual currency does not have legal tender status in any jurisdiction.”
Bitcoiners will have to chuckle at this line…
“This guidance addresses “convertible” virtual currency. This type of virtual currency either has an equivalent value in real currency, or acts as a substitute for real currency. “
Of-course that would more accurately be equivalent or greater value.
It seems that those hoping to escape financial regulation by claiming that ‘virtual currencies’ are not money, or ‘real’ currencies won’t have much luck. While FinCEN tends to agree with you, it still sees your play money as its problem.
“Virtual currency does not meet the criteria to be considered ‘currency’ under the BSA, because it is not legal tender.“
However, appearing a several times in the paper is this line…
“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.“
“Users” are not subject to FinCEN regulations.
“A user who obtains convertible virtual currency and uses it to purchase real or virtual goods or services is not an MSB under FinCEN’s regulations.”
Bitcoin miners appear to be exempt from FinCEN regulation for the moment.
“A person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter.”
However, anyone who then sells the virtual currency to another for “real” currency “or its equivalent” is then subject to money transmitter rules. And this is perhaps the most concerning line from the document…
“An administrator or exchanger that (1)accepts and transmits a convertible virtual currency or (2) buys or sells convertible virtual currency for any reason is a money transmitter under FinCEN’s regulations.”
The paper does mention that there are some exemptions, however this bring up some important questions. Does FinCEN now see small time over-the-counter Bitcoin exchangers as subject to their regulations?
FinCEN rules also apply to those dealing in e-precious metals if they…
“transfers funds between a customer and a third party that is not part of the currency or commodity transaction”
“Since the definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies , the same rules apply to brokers and dealers of e-currency and e-precious metals.“
Prepaid Access rules do NOT apply to virtual currencies…
“A person’s acceptance and/or transmission of convertible virtual currency cannot be characterized as providing or selling prepaid access because prepaid access is limited to real currencies.”
Virtual currency dealers are NOT engaged in foreign exchange unless they also exchange ”the currency of two or more countries.”
The guidance paper is only 6 pages long and can be found here.
Also worth a read is the Bitcoin Foundation’s reaction to FinCEN’s guidance. “Today, we are all money transmitters… (no, really!)“