Washington State Enacts Law Defining Licensing Requirements for Transmitters of Money and Virtual Currency

Fintech Virtual Currency Distributed Ledger State Legislation

On April 17, Washington Governor Jay Inslee signed into law a new piece of legislation (SSB 5031), which formally adds virtual currency to its money transmitter law. The legislation—introduced at the request of the Washington Department of Financial Institutions (DFI)—amends the definition of money transmission to include virtual currency, which is defined as “a digital representation of value used as a medium of exchange, a unit of account, or a store of value, but does not have legal tender status as recognized by the United States government.” The definition of virtual currency does not, however, include “the software or protocols governing the transfer of the digital representation of value or other uses of virtual distributed ledger systems to verify ownership or authenticity in a digital capacity when the virtual currency is not used as a medium of exchange.” The new law requires that applicants for a money transmitter license with business models that store virtual currency on behalf of others must provide a third-party security audit of all electronic information and data systems acceptable to DFI. Furthermore, licensees transmitting virtual currencies must now hold “like-kind virtual currencies” of the same volume as that held by the licensee but which is obligated to consumers in lieu of permissible investments. Among other disclosures, virtual currency licensees must disclose to consumers a schedule of fees and charges, whether the product or service is insured, that the transfer is irrevocable, and the licensee's liability for mistakes. Among other provisions, the law:

• outlines new bond requirements for online currency exchange licensees;
• expands supervisory powers allowing DFI to participate in joint or concurrent examinations with other state or federal agencies;
• mandates that licensees report all licensee branch locations and all authorized delegates to the nationwide licensing system within 30 days of the contractual agreement with the licensee to provide money services in the state;
• makes civil penalties $100 per violation per day for each day a violation is outstanding; and
• excludes from its definition of “money transmission” the “provision solely of connection services to the internet, telecommunications services, or network access; units of value that are issued in affinity or rewards programs that cannot be redeemed for either money or virtual currencies; and units of value that are used solely within online gaming platforms that have no market or application outside of the gaming platforms.”

The law goes into effect July 23, 2017.