The Uniform Law Commission is set to vote on a draft Uniform Regulation of Virtual Currency Businesses Act at its upcoming annual meeting in San Diego beginning on July 14th. As numerous states and federal regulators have already begun the process of regulating virtual currencies through “money transmitter” statutes or related legislation, the uniform act attempts to establish model standards for the regulation of business activities tailored to virtual currencies.
Specifically, the uniform act would regulate businesses whose products and services include: (1) the exchange of virtual currencies for cash, bank deposits, or other virtual currencies; (2) the transfer from one customer to another of virtual currencies; or (3) certain custodial or fiduciary services in which the property or assets being controlled or managed include virtual currency. The act includes several exemptions from regulation for banks, securities brokers, personal or household purchases, blockchain data miners and others.
In explaining the uniform act, the drafting committee identified various “novel features” that distinguish the uniform act’s approach. First, the uniform act creates a three-tier licensure system with persons involved in minor activity being exempted from the act, an intermediate provisional registration status designed as an “on-ramp” to promote innovation, and full licensure for providers exceeding certain specified volume thresholds. Second, the uniform act encourages cross-state reciprocal licensure arrangements. Last, the act mandates the application of Article 8 of the Uniform Commercial Code (“Investment Securities”) to virtual currency transactions and the treatment of virtual currency as a “financial asset.” The practical effect of this provision would protect purchasers of virtual currencies from claims by creditors of the seller if the purchaser had no notice of a creditor’s claimed security interest.
The incorporation of UCC Article 8 received vocal opposition from the digital currency exchange company Coinbase. A report following a recent conference call with the drafting committee indicates that a compromise may be reached removing the UCC Article 8 provisions from the draft uniform act.
Whatever the results of the upcoming ULC vote on the uniform act, regulation of virtual currency markets is inevitable. The drafters of the act posit that establishing a uniform and balanced regulatory framework (and avoiding patchwork statutory schemes across the states) would best serve the goals of facilitating industry growth and protecting consumers.