February 6, 2015

Consumers Union, the National Consumer Law Center (on behalf of its low income clients), and Professor Mark E. Budnitz, Professor of Law Emeritus, Georgia State University School of Law, appreciate this opportunity to comment on the Conference of State Bank Supervisors’ draft model regulatory framework (“the framework”) for state virtual currency regulatory regimes.

The framework is a step toward cutting through the hype and hysteria surrounding virtual currencies and creating a structure to secure the benefits of these technologies while limiting the risks to consumers. As state lawmakers and regulators consider how to implement it, they should also undertake a vigorous review of their money transmitter statutes and update them as appropriate to ensure maximum consumer protections, including requiring surety bonds in amounts tied to volume and risk, and permissible investments at a one to one ratio to match outstanding obligations.

We agree that activities-based regulation is appropriate, as virtual currency technology may ultimately have uses beyond financial services. However, at present, most consumer-facing virtual currency businesses appear to be offering financial services. Specifically, many of these businesses appear to be offering services that are typically regulated under money transmitter statutes. We think that businesses dealing in fiat or virtual currency money transmission should be licensed and supervised. Activities-based regulation is the best way to ensure that appropriate safeguards, built on sound policy, are enacted, while still allowing for appropriate regulatory flexibility.

These comments focus on three aspects of the framework: licensing, financial strength and consumer-facing protections. We believe that the framework can be improved by making explicit that covered virtual currency businesses must have: