January 31, 2014 –
New guidance on virtual currency, nonbanks engaging in international remittances

FinCEN issues administrative rulings on virtual currency miners and investors

Yesterday, the Financial Crimes Enforcement Network (“FinCEN”) published two administrative rulings, providing additional information on whether a person’s conduct related to convertible virtual currency brings them within the Bank Secrecy Act’s (“BSA”) definition of a “money transmitter.” The rulings further interpret FinCEN’s virtual currency guidance issued in March of 2013.

The first ruling states that, to the extent a user creates or “mines” a convertible virtual currency solely for a user’s own purposes, the user is not a money transmitter under the BSA. The second ruling states that a company purchasing and selling convertible virtual currency as an investment exclusively for the company’s benefit is also not a money transmitter.

In making its conclusion under each of the rulings, FinCEN highlighted that one of the material factors that it considers in determining that a person is not an money services business is what the person uses the convertible virtual currency for, and for whose benefit. Further, each of the rulings caution that any transfers to third parties at the behest of the Company’s counterparties, creditors, or owners entitled to direct payments should be closely scrutinized, as they may constitute money transmission.

As a result of the foregoing, those that engage in activities involving virtual currencies should carefully evaluate their circumstances to ensure that they are in compliance with applicable federal and state money services business registration/licensing requirements. Additionally, financial institutions, such as banks or broker dealers, seeking to establish accounts for certain types of virtual currency-based businesses may need to update and revise their BSA/AML/OFAC compliance programs to address the current regulatory environment surrounding virtual currencies.
For more information:

• FinCEN’s administrative ruling regarding the Application of FinCEN’s Regulations to Virtual Currency Mining Operations

• FinCEN’s administrative ruling regarding the Application of FinCEN’s Regulations to Virtual Currency Software Development and Certain Investment Activity

CFPB issues proposed rule seeking to supervise larger nonbank institutions

On January 23, 2014, the Consumer Financial Protection Bureau (“CFPB”) issued a proposed rule (the “Proposed Rule”) that would place the largest nonbank institutions that engage in international remittance transfers under CFPB authority. The Proposed Rule comes on the heels of the CFPB’s prior rule (the “Remittance Rule”) that took effect October 2013 creating certain protections for consumers who transfer money internationally.

The Proposed Rule classifies large nonbank institutions as institutions that internationally transfer an aggregate annual amount exceeding $1 million. Among other things, the Proposed Rule would subject these larger nonbank institutions to general CFPB supervision where they would be examined for compliance with the Remittance Rule and would require them to disclose certain information, investigate errors and remit funds while processing international remittance transfers.

As a result of the foregoing, certain nonbank financial institutions may need to review, revise and enhance their Remittance Rule policies and procedures in anticipation of potential supervision and examination by the CFPB.

Read the Proposed Rule.

If you have any questions regarding virtual currencies or the CFPB’s recently Proposed Rule, please contact Andres A. Fernandez, Gabriel Caballero or Stephanie Quiñones.

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