Updated: Sep 21, 2022
On May 12, 2022, Florida Governor DeSantis signed CS/HB 273, a big win for businesses dealing with virtual currencies. The bill goes into effect starting Jan. 1, 2023, updating Chapter 560 of the Florida Statutes to clarify which businesses need to acquire a license from the Florida Office of Financial Regulation (OFR) as Money Services Businesses (MSB). It also updates the definitions of a few key terms within the state’s MSB law (Chapter 560), easing the burden on two-party virtual currency sellers, like Bitcoin ATM owners. These Bitcoin ATM owners still require compliance with federal regulators like FinCEN through the Bank Secrecy Act.
What Definitions Have Changed?
The definitions at the beginning of a chapter set the scope for the activities prohibited by the State and who is subject to these restrictions. In the amended version of the law, the definition section adds the term “virtual currency” defined as: “a medium of exchange in electronic or digital format that is not currency.” This broad definition includes two exceptions, namely (1) digital tokens issued by game publishers for use within their game’s ecosystem, and (2) reward points awarded to customers that are solely used for payment to the issuer or other designated merchants and not redeemed for currency. Bitcoin is one example of a virtual currency under this definition, but credits for in-game stores or credit card reward points are not.
The only other Florida Statute to define virtual currency is Florida’s Money Laundering Act. Added in 2017, on the heels of the 2016 Espinoza case, virtual currency was defined as a medium of exchange in electronic or digital format that is not a coin or currency of the United States or any other country. Even though both of these general definitions are vague, recognition of these virtual assets as mediums of exchange that are not currency by the Florida legislature shows the state’s lawmakers understand the need for clarity in the cryptocurrency space and willingness to make Florida a crypto-friendly state.
The MSB amendment also modifies the definitions of “money transmitter”, “payment instrument”, “electronic instrument”, “monetary value”, and “stored value” to account for the inclusion of virtual currencies. The most notable of these changes is how a “money transmitter” now specifically excludes those who act as a principal in a virtual currency transaction, instead including only those with the unilateral ability to execute or prevent a transaction as money transmitters. Once the law goes into effect on Jan. 1st, 2023, the customer’s custody of crypto coins will determine whether a company counts as a money transmitter. As long as the customer is in control of their private key, and therefore their coins, the crypto ATM owner is not unilaterally able to execute or prevent transactions between users of their services. Thus, ATM owners will generally no longer require state Money Transmitter Licenses (MTLs) after 2022.
Why is This Change Important?
In the 2019 Espinoza appeal, the Florida Third District Court of Appeal court found Mr. Espinoza acted as a money transmitter and payment instrument seller as Bitcoin fit the statutory definition of a “payment instrument” with “monetary value” and he needed a MTL to sell Bitcoin for cash.
Following this decision, the OFR issued declaratory statements and aligned itself with the Third District Court of Appeals. The OFR also issued guidance that both third-party intermediaries and two-party principals require licensing as money transmitters. Requiring Bitcoin ATM operators to obtain state licensure, on top of the federal registrations already required, created a layer of redundancy that hurt business owners attempting to compete in the fast-paced crypto ecosystem and raised the barrier to entry. Notably, the license application requires a Company to produce audited financial statements, and prove a minimum net worth of $100,000, plus an additional $10,000 for each ATM location, up to a maximum of $2,000,000.
This amendment to chapter 560 softens the burden by no longer requiring sellers in two-party transactions to obtain a license before selling a virtual currency like bitcoin to customers. As bitcoin ATM owners will no longer fit the definition of money transmitters, they can not only skip the lengthy MTL application process and associated costs, but also separate themselves from larger ‘custodial’ cryptocurrency exchanges like Coinbase or Kraken who do require the license. Notably, once January 2023 arrives, Florida will be back in alignment with approximately 42 other states in its approach to the sale of virtual currencies. The Florida Blockchain and Business Association (FBBA) worked hard to support this new law.
More sensible regulation like this amendment is needed to continue promoting Florida’s crypto industry and show business owners that Florida plans to create a regulatory environment that attracts innovation and adoption of new technologies. Cryptocurrency continues to gather mainstream adoption and reducing regulatory risks to business owners will encourage more people to start working and interacting within the fast-growing industry.
How Do Businesses Operate in the Interim?
Going into the second half of 2022, the timeline to secure licensing from the OFR puts new Bitcoin ATM Operators or over-the-counter trading desks in a frustrating position. To follow the OFR’s most recent guidance and operate before the end of the year, businesses who buy or sell virtual currency from customers are expected to prepare audited financial documents and send information to the OFR for review. This licensure process takes around 3 months to gather the required documentation and the OFR requires an additional 3 months to complete their review of the submitted documents. Businesses starting over the next few months likely would not receive a license from the OFR until after 2023 begins, when the licensing requirement no longer applies.
If you are in the process of starting a cryptocurrency business, compliance with Federal and State regulations should be a top priority. Hodder Law Firm helps clients with understanding the current landscape of cryptocurrency compliance and works with the appropriate organizations to ensure legal operation on behalf of business owners. In episode 124 of HODLCast, the podcast hosted by firm founder Sasha Hodder, guest Jeremy Snyder and Sasha discuss what Jeremy does as the CEO of a Bitcoin compliance company, the different types of scams in the crypto industry, the future of the regulatory landscape, and much more! Listen on our website through the link above, Spotify, Apple Podcasts, Google Podcasts, or Stitcher.
By Sasha Hodder, Crypto Attorney & Bitcoin Enthusiast