Top Cryptocurrency Regulations: What You Need to Know

Author Justin Gilmore
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With the popularity of Bitcoin skyrocketing, installations of cryptocurrency Bitcoin ATMs have followed suit, growing a staggering 80% in 2020 from 6373 units to a total of 13,955. Consumers want to buy, sell, and make payments with digital tokens for goods and services, and Bitcoin ATMs offer that convenience. A Bitcoin ATM’s peer-to-peer, borderless, and profitable transfer network has become attractive to entrepreneurs and investors who can meet the demand of digital money holders.

While Bitcoin ATMs offer you a unique business opportunity within the world of deregulated cryptocurrencies, there are several payment service regulations you must follow. So if you are about to become the proud owner of a cryptocurrency ATM, read this guide to make sure you are compliant in your jurisdiction, as it will help determine the success of your Bitcoin kiosk.

What is the problem with virtual currency regulations?

Even though Bitcoin is decentralized, cryptocurrency ATMs are considered payment services, which means they fall under several compliance laws at the state level. As the kiosk operator, it is your responsibility to comply with your state government’s specific rules. Different states have completely different legal viewpoints on digital money, tokens, or currencies; for example, most states now require a Money Transmitter License (MTL), while Montana does not. For many bitcoin operators, the various virtual currency regulations are very confusing.

Plus, the Federal government wants to maintain consumer privacy, reduce fraudulent situations, and limit money laundering (as they do with all standard payment services), which they accomplish with more regulations. The safety and security of each digital money transaction benefit us all, but it also means you need to obtain additional federal business licenses. Each new compliance law takes time and creates more expense for you, the ATM operator.

So, with confusing state laws, different regulations, and additional federal restrictions, what do Cryptocurrency ATM operators need to do or know to achieve regulatory compliance?

Your crash course in Cryptocurrency Regulators

Everybody, Meet FinCEN

  • The Financial Crimes and Enforcement Network (FinCEN) is a branch of the U.S. Treasury designed to safeguard against the illicit use of the financial system. It’s the regulatory body responsible for enforcing compliance laws; it also covers cryptocurrencies under the Bank Secrecy Act. FinCEN has no interest in regulating the movement of cryptocurrencies, but they are very invested in the legitimacy of each payment transaction and the accuracy of all record keeping. FinCEN helps reduce illegal money transfers by ensuring strong payment regulations, even via digital markets or cryptocurrency exchanges.
  • For Bitcoin ATM Operators, FinCEN is who you report to and from where you obtain your licenses. FinCEN considers you a financial transmitter or a Money Service Business (MSB), so you must have your own compliance controls, just like a bank. FinCEN Director Kenneth A. Blanco made that fact clear when commenting on the advent of blockchain: “We expect each financial institution to have appropriate controls in place based on the products or services it offers, consistent with the obligation to maintain a risk-based AML program.” You must register every two years with FinCEN for their database as you keep your machine compliant. Luckily, you can complete the registration with FinCEN online in about a half-hour!

AML, MTL, and MSB – What You Need to Know

There are three main compliance regulations that you need to know: a Money Service Business (MSB) registration, a Money Transmitter License (MTL), and an Anti-Money Laundering (AML) Policy.

  • MSB: Any person or business who exchanges money, whether it is a traveler’s check or a cryptocurrency, must register as a Money Service Business. When you get your license, it will outline for you the required records you must keep for each transaction, most of which involve identity verifications. For example, an MSB must report any large transactions (over 2000$) deemed suspicious (i.e., planned for illegal activities). You will receive your reporting details when you register.
  • AML Compliant Policy: You are required to create an Anti-Money Laundering Policy that follows a set of procedures that deter illegal activity. This includes filling out Suspicious Activity Reports (SAR) and adopting Know Your Customer (KYC) protocols that alert the proper regulatory bodies to potential money laundering. In effect, you enact due diligence on each customer who uses your ATM to minimize illegal activity. Not only is this good for the economy, but it protects your ATM and business.
  • Money Transmitter License: For most states, anyone who exchanges money must apply for an MTL in the state that they plan to do business. Each state fits within four categories of restrictiveness with virtual currency regulations, so what you need for your license may be different than someone else. For example, some states require surety bonds while others do not. The purpose of an MTL is to clarify best practices in regards to money transfers — this can help reduce fraud and incorrect transactions, especially as financial services move into digital channels.

So, What’s The Solution?

Even with all this information, there are still many internal controls, audit protection, and employee training that may be required in addition to the compliance articles outlined above. So what is the simplest way for ATM operators to stay compliant? We suggest you follow these steps:

  1. Register with FinCEN
  2. Register for your Money Service Business (MSB)
  3. Be sure to be AML compliant.
  4. Register for money transmitter license (MTL) and any other state business licenses.
  5. Find a legal partner that understands the jurisdiction where your Bitcoin ATM will be located.
  6. Find a crypto-friendly bank that is familiar with dealing with cryptocurrency businesses.
  7. Partner with a reputable ATM processing company.

An ATM processing partner can help you reach compliance with far less hassle. Most Bitcoin ATMs come with built-in KYC compliant hardware, and they also include software that handles much of the reporting and due diligence you need to satisfy most regulations. Plus, your Bitcoin ATM provider is an expert when it comes to regulatory compliance, and they can guide you through the entire process, ensuring that you obtain each license in good order.

If you need more information about Bitcoin ATM regulations, you can attend one of our ATM business courses, or you can always contact us here via our online contact forms to initiate an inquiry— we would be happy to help you with our Bitcoin ATM compliance needs!