The Pennsylvania Department of Banking and Securities recently issued guidance under the Money Transmitter Act (“MTA”) for entities engaged in various forms of virtual currency business in the commonwealth. The MTA, like similar statutes in other states, requires entities engaged in a money transmitter business to obtain a license, maintain minimum net worth standards, pay a surety bond, be subject to periodic examinations, and take other actions to safeguard customer funds. As we previously reported, many of these statutes were not drafted with virtual currency businesses in mind, which has created various compliance challenges for the crypto community.
Importantly, the new guidance clarifies that only fiat currency, i.e., currency issued by the United States government, is “money” for purposes of the MTA. Thus, virtual currency, including Bitcoin, is not considered “money” under the MTA.
The guidance also addresses the status of web-based virtual currency exchange platforms (collectively, “Platforms”) that facilitate the purchase or sale of virtual currencies in exchange for fiat currency or other virtual currencies, or permit buyers and sellers of virtual currencies to make offers to buy or sell virtual currencies from other users. Such Platforms never directly handle fiat currency; any fiat currency paid by or to a user is maintained in a bank account in the Platform’s name at a depository institution. Under the MTA, these types of Platforms are not money transmitters. The guidance reasons that Platforms, while never directly handling fiat currency, transact virtual currency settlements for the users and facilitate the change in ownership of virtual currencies for the users. Accordingly, there is no transferring money from a user to another user, and the Platform is not engaged in the business of providing payment services or money transfer services.
The guidance also addresses the status of entities operating virtual currency kiosks, ATMs, and vending machines (collectively, “Kiosks”) as “money transmitters” under the MTA. The guidance notes that some Kiosks are one-way systems that, for a fee, dispense virtual currency in exchange for fiat currency. Others are two-way systems that, for a fee, exchange both fiat currency for virtual currency and virtual currency for fiat currency. In both the one-way and two-way Kiosk systems, the guidance concludes that there is no transfer of money to any third party. Instead, the user of the Kiosk only exchanges fiat currency for virtual currency and vice versa, and there is no money transmission. Thus, the guidance makes it clear that the entities operating Kiosks would not be deemed money transmitters under the MTA.