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Virtual Currency Added to Utah’s Unclaimed Property Act
In March, Utah passed SB 175 amending its Unclaimed Property Act. Among the changes incorporated through the new law was the expansion of the law’s coverage to include “virtual currency”—a term the law defines as “a digital representation of value used as a medium of exchange, unit of account, or store of value, which does not have legal tender status recognized by the United States.” Notably, this definition explicitly excludes “(i) the software or protocols governing the transfer of the digital representation of value; (ii) game-related digital content; (iii) a loyalty card; (iv) membership rewards” and “(v) a gift card.” Virtual currency subject to Utah law must be turned over to the state’s treasury after it has been “presumed abandoned” for a prescribed period of time. The law contains a detailed test for when property has been presumed abandoned, when the clock starts ticking, and under what circumstances that clock may be paused and/or reset. In a March 15 press release, Utah Treasurer David Damschen, “applauded the final passage of SB 175,” but also explained that “there are certain changes in the law related to properties held by the banking and insurance industries that we may still have to make,” including, for example “certain prepaid debit card account balances.”
SEC Denies Application for Bitcoin ETF Due to Lack of Regulation, Potential for Manipulation
On March 10, 2017, the SEC issued an Order disapproving of a proposed rule change by the BATS BZX Exchange (“the Proposal”), which proposed to list and trade “commodity-based trust shares” issued by the Winklevoss Bitcoin Trust. The Proposal, if approved, would have established a bitcoin exchange-traded fund (“ETF”) that market participants could invest in through the BATS BZX Exchange platform. Specifically, in rejecting the Proposal, the Commission emphasized the lack of regulation in the bitcoin market, noting both (i) that the BATS BZX Exchange platform “would currently be unable to enter into, the type of surveillance-sharing agreement that helps address concerns about the potential for fraudulent or manipulative acts and practices in the market for the Shares”; and (ii) that bitcoin regulation, at present, would leave a bitcoin ETF more susceptible to manipulation than an ETF comprised of other commodities, such as gold and silver. Ultimately, the Commission concluded that, “[a]bsent the ability to detect and deter manipulation of the Shares—through surveillance sharing with significant, regulated markets related to the underlying asset—the [Commission] does not believe that a national securities exchange can meet its” regulatory obligations.
Comments submitted in response to the original BATS BZX Exchange proposed rule change can be accessed here.
Coinbase Gets NY BitLicense, Clearance For Its Operations
On January 18, the New York State Department of Financial Services (NYDFS) announced that it had approved the application of Coinbase, Inc., for a virtual currency and a money transmitter license. According to NYDFS, the license was issued to Coinbase—a digital currency wallet that facilitates transactions with Bitcoin and other virtual currencies—only after “a comprehensive review of Coinbase’s applications, including the company’s anti-money laundering, capitalization, consumer protection, and cyber security policies.” Having met the New York regulator’s standards for operations in the state, Coinbase may now operate, under supervision by NYDFS, as a service for buying, selling, sending, receiving and storing Bitcoin.
As previously covered in InfoBytes, NYDFS’s BitLicense framework—which was finalized back in June 2015—requires virtual currency companies to submit a 31-page application providing information covering, among other things: (i) written policies and procedures including, but not limited to BSA/AML, cybersecurity, privacy and information security, (ii) company information, (iii) biographical information on company directors and stockholders, and (iv) an explanation of the methodology used to calculate the value of virtual currency in fiat currency. In addition, the NYDFS released a set of FAQs to help clarify the BitLicense requirements. To date, NYDFS has approved five firms for virtual currency charters or licenses, while denying those applications that did not meet its standards.
Illinois Regulator Seeks Comment on Proposed "Digital Currency Regulatory Guidance"
The Illinois Department of Financial and Professional Regulation (IDFPR) is requesting comment on its proposed “Digital Currency Regulatory Guidance” on decentralized digital currencies—including Bitcoin, Dogecoin, Litecoin, Ethereum, and Zcash. The proposed guidance seeks to establish the regulatory treatment of decentralized digital currencies under existing definitions of money transmission in Illinois, as defined in the Illinois Transmitters of Money Act (205 ILCS 657) (TOMA). Currently, digital currencies do not fit the statutory definitions of “money” and, therefore, do not independently trigger the licensing requirements of TOMA. However, some business activities involving decentralized digital currency that involve the receipt of “money” can trigger the licensing requirements of TOMA. Comments must be received by January 18, 2017 at 6:00pm EST and may be submitted by clicking here.
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