State licensing is a growing trend in crypto. Here’s what businesses need to do
The rise in popularity – and value – of a number of cryptocurrencies, as well as some pandemic-induced concerns, led to a considerable increase in state-level financial regulation in 2021. This trend has continued in 2022 and shows no signs of stopping. In fact, it actually seems to be speeding up.
This upswing in crypto regulation will inevitably result in a greater outlay of compliance resources. So, what’s on the horizon for the regulatory environment, and what can a crypto company do to prepare?
“No action” determinations are unsustainable and quickly disappearing
As a lynchpin of money transmitter license (MTL) compliance, the “no action” standard is one of the last remaining carve outs or exceptions when it comes to the application of state regulatory oversight for certain cryptocurrency businesses. Depending upon the crypto business’ flow of funds and business model, the question of whether an MTL is required to legally operate in any given state can be a tricky one.
In the simplest terms, many, if not most, state regulators have maintained a “no action” or “no opinion” stance as it pertains to certain, select cryptocurrency businesses. For years, these companies have been able to avoid the rigors of licensure and direct regulatory oversight in many states, making federal anti-money laundering (AML) the most significant regulatory obligation.
However, over the last year or so, we saw an increasing number of states do away with their “no action” stance in favor of mandating state money transmitter licensure for virtually all crypto currency companies. This shift actually seems to be accelerating, with more and more state regulatory agencies announcing plans to do the same. At this rate, almost every state will likely be applying money transmitter license requirements to nearly all exchangers of cryptocurrency within the next couple of years, from small time cryptocurrency kiosk operators to multinational online cryptocurrency exchanges. Unfortunately, this may be news to many crypto currency companies who are woefully unprepared.
What’s on the horizon?
Almost every state’s financial regulatory agency has issued revised guidance or applied recently passed legislation over the course of the last couple of years or so. This is a trend that is only likely to continue in the coming years.
Importantly, each state has its own points of emphasis and approach with regard to regulatory oversight.
Once a crypto business is granted an MTL at the state-level, the real work truly begins. Every state has its own set of forms, ongoing reporting requirements, and deadlines, making MTL compliance an increasingly complicated task. These unique sets of requirements and expectations are as different as the states themselves.
If your customer footprint is across multiple states, imagine how difficult it will be with more and more states transitioning from “no action” to licensure.
How are companies currently coping?
Right now, solutions for tracking ongoing state money transmitter regulatory requirements generally consist of spreadsheets, calendar reminders, and constant correspondence with colleagues and regulators. For many companies, Google apps and other patchwork software solutions are providing basic functionality but fall short in some very critical areas.
For starters, these systems offer extremely limited record-keeping and time-management capabilities. This is because they lack the ability to create and automatically connect calendar items, tasks, documents, and spreadsheet data. There’s also no way to synchronize tasks, records, and deadlines.
When it comes to crypto compliance, these are more than “downsides.” They can actually make the undertaking even more complicated and time-consuming. It’s already a nightmare scavenger hunt that requires a lot of manual elbow grease and brainpower to stay on top of it all, and we’re just talking about the states that currently have MTL crypto regulations in place. Things are about to get much tougher.
A real solution
There’s no question that the state regulatory landscape is changing – rapidly. “No action” states are disappearing, and the regulatory environment is only going to get more complicated and confusing for businesses at scale as more states adopt unique regulations.
The coming regulatory environment necessitates a solid MTL management system. Enter ComplyFit, a groundbreaking tool that helps state money transmitter licensees stay on top of their required license reporting obligations across all 50 states and territories.
Our first-of-its-kind solution allows you to create calendar items and set reminders so you don’t have to constantly think about what needs to be done next. You can easily update the calendar when you complete certain tasks. You’ll receive proactive alerts about upcoming tasks letting you know in advance of deadlines with details and links to resources, forms, and regulatory contact information so that you may take immediate action. Your schedule becomes an automated, streamlined machine and your calendar becomes a useful tool for getting stuff done rather than a place to mark dates and promptly forget about them. You can correct the issues that eat into your company’s productivity and reinvest valuable time into critical business development and compliance responsibilities.
Schedule a demo to see exactly how ComplyFit can help you successfully manage your state money transmitter license reporting requirements.