The US Conferences of State Bank Supervisors (CSBS) has issued a model framework to assist states that are seeking regulations for Bitcoin activities.
The organization, known for its loyal advocacy towards advancing the state banking systems, had earlier released an initial draft version of the aforementioned framework. It had also opened a two-month commenting period, inviting both regulatory and private sector stakeholders to provide their valuable inputs.
Based on the dialogue with around 20 different organizations, hailing from both Bitcoin and financial sectors, CSBS finalized the Draft Framework as the “CSBS Model Regulatory Framework for State Regulation of Certain Virtual Currency Activities.” As the organization stated, it took care of several key issues that were raised by commenters.
For instance: a majority of commenters wanted CSBS to draw out an accurate “legal” definition for virtual currencies like Bitcoin, which it did — eventually.
Nonetheless, the standards described in the CSBS Model Framework are propagandized only as recommendations — something state bank regulators could use while customizing their own Bitcoin laws. As it looks, the whole purpose behind the launch of a uniformed framework is to create consistencies between states when it comes to regulating virtual currency businesses.
CBCS proposed that companies involved in the transmission and exchange of virtual currencies should fall under the purview of state bank regulators. It also includes companies that facilitate “third-party exchange, storage, and/or transmission of virtual currency (e.g. wallets, vaults, kiosks, merchant-acquirers, and payment processors).”
“It is CSBS policy that entities performing activities involving third-party control of virtual currency should be subject to state licensure and supervision like an entity performing such activities with fiat currencies,” the group wrote. “Accordingly, activities involving fiat currencies that are otherwise subject to state laws should be covered if undertaken using virtual currency.”
The group further recommended state banks regulators to obtain a detailed business plan. It would enable them to understand risks associated with the respective licensee applicant.
No Relief for Bitcoin Startups
According to the CSBS, the commenters had urged them to exclude a certain license standards for Bitcoin startups, citing that they are comparatively less riskier than their giant counterparts. However, the group declined the request, stating that there is no scope for an “on-ramp” or conditional license for them.
“State regulators understand the argument in favor of legal and regulatory incubation,” CSBS argued. “However, these goals must be balanced against considerations including the following: (1) consumers can be harmed by entities regardless of size, and (2) the property interest created in a license carries due process and other procedural rights that are difficult to tailor and separate from other legal requirements.”
Flexible Audit Requirement
The CSBS discussed how it has amended the requirement for a periodic cybersecurity audit after receiving proposals from the commenters. The group said that it recognizes how small startups could face financial difficulties to conduct such costly third party audits, believing which they will be ordering audits only where it seems necessary.
“Cybersecurity audits are but one tool to mitigate cybersecurity risks faced by all financial institutions,” CSBS stated.
“State regulators believe a culture of cybersecurity awareness is necessary for all financial institutions, and expect all institutions to have policies, procedures, and controls in place to limit cyber risks.”
The final version of the CSBS Model Regulatory Framework for Virtual Currencies can be found here.