Is virtual currency “money” for purposes of the Pennsylvania Money Transmitter Act?
Not according to recently issued guidance from the Pennsylvania Department of Banking and Securities (DoBS), which has joined a growing number of states by weighing in on the question.
After receiving multiple inquiries from entities engaged in various forms of virtual currency (sometimes called crypto currency) exchanges, the DoBS provided guidance on the applicability of Pennsylvania’s Money Transmission Business Licensing, or Money Transmitter Act (MTA), to virtual currency exchange platforms.
The Pennsylvania statute defines “money” as “currency or legal tender or any other product that is generally recognized as a medium of exchange.” State law also provides that money is “[l]awful money of the United States” and “[a] medium of exchange currently authorized or adopted by a domestic or foreign government.”
“Thus, only fiat currency, or currency issued by the United States government, is ‘money’ in Pennsylvania,” the DoBS wrote. “Virtual currency, including Bitcoin, is not considered ‘money’ under the MTA. To date, no jurisdiction in the United States has designated virtual currency as legal tender.”
The DoBS had received requests for guidance from web-based virtual currency exchange platforms that facilitate the purchase or sale of virtual currencies in exchange for fiat currency or other virtual currencies. Many of the platforms permit buyers and sellers of virtual currencies to make offers to buy and/or sell virtual currencies from other users.
Importantly, the platforms never directly handle fiat currency, the DoBS explained, and any fiat currency paid by or to a user is maintained in a bank account in the platform’s name at a depository institution.
“Under the MTA, these Platforms are not money transmitters,” according to the guidance. “The Platforms, while never directly handling fiat currency, transact virtual currency settlements for the users and facilitate the change in ownership of virtual currencies for the users. There is no transferring money from a user to another user or 3rd party, and the Platform is not engaged in the business of providing payment services or money transfer services.”
The DoBS reached a similar conclusion with regard to entities operating virtual kiosks, ATMs and vending machines. Some of the kiosks are one-way systems (which dispense virtual currency in exchange for fiat currency for a transaction fee) while others are two-way systems, exchanging both fiat currency for virtual currency and vice versa, for a transaction fee.
“In both the one-way and two-way Kiosk systems, there is no transfer of money to any third party,” the DoBS wrote. “The user of the Kiosk merely exchanges fiat currency for virtual currency and vice versa, and there is no money transmission. Thus, the entities operating the Kiosks would not be money transmitters under the MTA.”
To read the Pennsylvania guidance, click here.
Why it matters
The Pennsylvania guidance is consistent with guidance on the treatment of virtual currency in a few other states, such as New Hampshire, where that state’s banking department ruled that it will not regulate businesses solely engaged in virtual currency transactions. A recent memorandum from the Texas Department of Banking indicated that it requires an individualized analysis of an entity’s handling of the fiat currency to determine whether regulation is required, while guidance from the Washington Department of Financial Institutions indicated that the transmission of virtual currencies could subject an entity to state money transmission regulations, regardless of whether fiat currency is involved. This guidance demonstrates that the question is not yet settled and that different conclusions could be reached on a case-by-case basis in various states.
It will be interesting to see whether other states follow the lead of Pennsylvania in declaring virtual currency not to be money and therefore exempt its transmission from the money transmitter rules.