Update to Money Transmitter Law in Vermont

The Vermont Department of Financial Regulation (DFR) has announced significant updates to the state’s money transmitter law by adopting the Model Money Transmission Modernization Act. This nationwide model law, developed by the Conference of State Bank Supervisors (CSBS), aims to establish a consistent set of standards for regulating money transmitters across the United States.

  1. Enhanced Virtual Currency Regulation: All virtual currency companies need a license if transacting more than $5,000 per year. Bitcoin ATM Operators can only transact $1,000 daily and charge up to $15 or 5%. This is similar to what happened in California at the beginning of 2024.
  1. Net Worth Requirements & Permissible Investments. 
  1. The revised law introduces sliding-scale requirements for net worth. This means that the more assets your business holds, the higher the net worth you must maintain, adding another layer of financial strain.
  1. Additionally, money transmitters must maintain investments equal to their outstanding money transmission obligations, creating a statutory trust in case of bankruptcy. This likely means an increase in surety bond requirements, which translates to higher costs and more complex financial management for your business.
  1. Valuation of Virtual Currency
  1. The commissioner can now establish limitations and methods to value virtual currency assets for the net worth requirement. Given the volatile nature of cryptocurrencies, these valuations could be conservatively low.
  1. Timely transmission. There are some new guidelines for how fast the transmission needs to take place, though specifics were not provided in the memo. 
  1. Disclosures. Virtual currency licensees must disclose all fees and hidden markups on their transaction receipts. 
  1. Refunds. There are certain circumstances where refunds are mandatory, but the specifics are not provided in the memo.  
  1. Vermont Property Interest and Entitlement to Virtual Currency 
    1. For businesses holding custody over virtual currency on behalf of customers, there’s now a requirement to maintain a 1:1 reserve. 
  1. Prohibitions on Certain Practices
    1. All virtual currency must now be titled in the customer’s name. This significant change could create operational challenges, particularly with banks. It seems the expectation is for businesses to operate For Benefit Of (FBO) accounts, but, to my knowledge, no banks currently offer such accounts.
    2. The new regulations also prohibit rehypothecating, lending, or using customers’ virtual currency and must not use any unlicensed custodians. 
  1. Additional Regulatory Powers
    1. The commissioner now has the power to implement new rules and requirements as deemed necessary for consumer protection. This means the potential for even more restrictive regulations in the future.

Conclusion. These updates represent a substantial shift in Vermont’s regulatory landscape, introducing new challenges and costs for Bitcoin ATM and OTC operators. It’s crucial to stay informed and prepared to adapt to these changes. If you need assistance navigating these new regulations, please contact Hodder Law Firm. 

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