Crypto Is Not Money: Pennsylvania’s Department of Banking and Securities Rules No Licenses Required for Exchanges or ATMs

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Crypto Is Not Money: Pennsylvania’s Department of Banking and Securities Rules No Licenses Required for Exchanges or ATMs

The Pennsylvania Department of Banking and Securities has ruled that crypto exchanges, ATMs and “service providers” will not have to seek licenses under the Money Transmitter Act. The report, which was released today (January 23rd), reasoned that cryptocurrencies are not “currency or legal tender or any other product that is generally recognized as a medium of exchange.” As a result, they are not involved in transmitting money.

This is a thorny issue, as crypto supporters have long championed the prospect that Bitcoin and a number of other cryptocurrencies can be used in the same way as fiat currency – but with broader use cases. However, the ruling by the Pennsylvania Department of Banking and Securities (DoBS) is actually a positive one for businesses operating as crypto service providers. This is because they won’t have to seek these licenses, they can set up more quickly and operate with a greater level of autonomy.

The DoBS report, which can be read in full here, states, “The MTA defines “money” as “currency or legal tender or any other product that is generally recognized as a medium of exchange.” Additionally, Pennsylvania law has defined money as “[l]awful money of the United States” and “[a] medium of exchange currently authorized or adopted by a domestic or foreign government.” See 1 Pa. C.S. §1991; see also 13 Pa. C.S. §1201(b)(24). Thus, only fiat currency, or currency issued by the United States government, is “money” in Pennsylvania. Virtual currency, including Bitcoin, is not considered “money” under the MTA. To date, no jurisdiction in the United States has designated virtual currency as legal tender.”

This does suggest that the state is awaiting a ruling from the US government, but there has been little open discussion since the enabling of various task government investigatory task forces in the US and beyond last year.

However, this a clear and landmark ruling that may inform greater decisions on how cryptocurrency is treated within the US and beyond. For example, the SEC is yet to rule definitively on how ICOs are viewed, but this grey area has caused uncertainty and a resulting dip in productivity in the ICO market. A ruling that means registration with the SEC is necessary in all cases would only serve to lessen investment opportunities. Whereas, if all cryptocurrency-related activity is viewed as non-money based, this could impact the SEC’s stance on whether a crypto token can be interpreted as a security.

But the Financial Crimes Enforcement Network issued a letter back in February 2018, suggesting that ICOs wouldn’t get the same green light to operate as exchanges have been given in Pennsylvania. The letter stated,““…a developer that sells convertible virtual currency, including in the form of ICO coins or tokens, in exchange for another type of value that substitutes for currency is a money transmitter and must comply with AML/CFT requirements that apply to this type of MSB. An exchange that sells ICO coins or tokens, or exchanges them for other virtual currency, fiat currency, or other value that substitutes for currency, would typically also be a money transmitter.”

In addition to exchanges and ATMs, the Pennsylvania DoBS also ruled on one-way and two-way kiosks, explaining that “some Kiosks are one-way systems which, for a transaction fee, dispense virtual currency in exchange for fiat currency, while others are two-way systems which, for a transaction fee, exchange both fiat currency for virtual currency and virtual currency for fiat currency. In both the one-way and two-way Kiosk systems, there is no transfer of money to any third party. The user of the Kiosk merely exchanges fiat currency for virtual currency and vice versa, and there is no money transmission. Thus, the entities operating the Kiosks would not be money transmitters under the MTA.” This ruling comes after a delay of nearly three years, due to issues over budget within the state.