American bank supervisors release virtual currency policy

By Nicole Miskelly | 22 December 2014

The cyptocurrency community received some positive news last week when the Conference of State Bank Supervisors (CSBS) released their draft policy on state virtual currency. Although the CSBS does not have a direct say in state financial laws it does hold influence on state banks as the only coalition of state bank regulators in the US.

The CSBS outlined a number of suggestions in the proposal and is accepting public comments for the next 60 days. Commentators have likened the CSBS regulatory framework to the BitLicence proposal by the New York Department of Financial Service which outlines similar suggestions for the use of virtual currencies.

An introduction to the draft by the CSBS said: “After engagement with industry participants, state and federal regulators, and other stakeholders, CSBS recommends that activities involving third party control of virtual currency, including for the purposes of transmitting, exchanging, holding, or otherwise controlling virtual currency, should be subject to state licensure and supervision.”

One of the goals of the CSBS is to preserve the US dual banking system and recently the CSBS formed the CSBS Emerging Payment Task Force to investigate the intersection of state laws and the use of digital currencies. Consumer protection, law enforcement and market stability were identified by the task force as concerning areas raised by the unregulated use of cryptocurrencies. However, the CSBS said existing regulation can be applied to companies and services using virtual currency and highlighted that their proposed regulation would not limit non-currency uses of block chain technology.

In their policy the CSBS clarified their definition of virtual currencies. “For the purposes of this Policy Statement, virtual currencies are digital representations of value that can be a medium of exchange, a unit of account, and/or a store of value. Virtual currencies include, but are not limited to digital currencies and crypto-currencies such as Bitcoin.”

The CSBS also said that virtual currencies have a legitimate purpose as currency. “Virtual currencies have legitimate purposes and can be purchased, sold, and exchanged for goods or services or with other types of virtual currencies or with sovereign-issued legal tender such as the U.S. dollar.”

In the proposed state virtual currency regulation framework, the CSBS said: “A critical piece of such a system is the ability of states to share licensing and enforcement data in real time.” They also suggested ways that states can achieve recommended regulatory compliance. “States can apply activities-based regulations to virtual currency service providers through various means, including with laws and/or regulations written explicitly for virtual currency activities, or by interpreting or amending existing laws and regulations – for example, banking or other financial services laws – to include virtual currency in existing licensing schemes.”

In conclusion the CSBS highlighted that individuals and merchants using virtual currencies or non-currency uses of block chain technology are excluded from the policy. “In particular, this policy statement is not intended to cover the merchants and consumers who use virtual currencies solely for the purchase or sale of goods or services. Further, the policy statement is not intended to cover activities that are not financial in nature but utilize technologies similar to those used by digital currency. For example, a cryptography-based distributed ledger system for non-financial recordkeeping would be outside the scope of this policy.”


By Nicole Miskelly, bobsguide Lead Journalist

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