State Governments Planning to Regulate Bitcoin Exchanges

The squeeze continues. It is about to get very expensive to run a virtual currency exchange in all 50 states. State banking regulators are scrutinizing companies that let people buy and sell virtual currencies such as bitcoin, and some are looking at requiring costly licenses, according to people familiar with the efforts, reports WSJ.

From WSJ:

"This is definitely on our radar. We are becoming aware of more and more businesses that may need to be licensed," said Daniel Wood, assistant general counsel in the Texas Department of Banking.

Texas is one of 48 states that require companies to obtain money-transmission licenses to operate. South Carolina and Montana don't have such rules.

New York bank regulators said they are also discussing the issues with virtual currency exchanges operating in the state. "We are not only looking at whether virtual currency companies should be licensed as money transmitters," says Benjamin Lawsky, superintendent of the New York Department of Financial Services, but also looking at money-transmission rules "to see whether they need to be modernized" to address the "potential dangers raised by virtual currencies."[...]Companies that register with FinCEN as money transmitters must hire a chief compliance officer, implement an anti-money-laundering program and alert authorities if they believe a transaction might be tied to suspicious activity.

"If you are operating in this industry, you have to recognize it is regulated," says Chris Daniel, a lawyer specializing in payments at Paul Hastings LLP, an Atlanta firm.

Compliance isn't always easy at the state level, executives said. Each state has different requirements, according to people familiar with the process.

State money-transmission licenses can be costly. In Texas, companies seeking a license must provide a surety bond of between $300,000 and $2 million, depending on transaction volume, said Mr. Wood of the state's banking department.

The above ground virtual currency exchanges are about to be swept clean of all but the big boy, deep pocket players, who will be more than willing to take your name, rank and serial number, before allowing you to buy virtual currencies from them.