Adam Tracy Explains Money Service Business Registration

Cryptocurrency and payments attorney Adam S. Tracy explains money service business registrations and the requirements of FINCEN money service businesses.

Hey am I a money service business? I get that question about like three or four times a week. Okay. So let’s read this, all right? Money transmitter includes any person who engages as a business in accepting currency or funds denominated in currency, and transmits the currency or funds or the value of the currency or funds by any means through financial agency institution, or any other person engaged as a business in the transfer of funds. So right off the bat, okay, your money transmitters, right, which are your exchanges are money service businesses, right? And that includes Bittrex. Okay a lot of questions — well, if I don’t accept Fiat, do I have to get a license. Bittrex has all their licenses. Just because they don’t accept USD, doesn’t mean that they don’t need the license because they’re engaged in the transfer of funds denominated in currency, right?

So they denominate things in Bitcoin and they denominated as a like a quotient of $1.00. Right? So, you know, out of an abundance of caution, and you can make the arguments that Bittrex started out not having the license — you can make the argument that you don’t need the license, but out of an abundance of caution, like poorly-dressed lawyers and bad tweet suits will tell you like when you’re writing a will or something like that, you need the license. You need the license, and that’s not me trying to help the, you know, community of lawyers with fees. It’s just the best route to go, especially in this environment. And, I think clearly the money service business aspect of it denominates that you are money service business, and if you sort of look at it transitively then you are, in fact, acting as a money transmitter and we need the state level license.

Now, if you’re providing some sort of service with respect to going in and out of a particular coin, that may be a different dog altogether. So, let’s say you develop tokens for your platform, and people can go in and out of that token for purposes of utilizing that platform like, think of a ICO utility token, that wouldn’t be a money service business, right? That wouldn’t be money service business, because you’re not engaged in the transfer those funds — that’s just an antecedent to what you’re trying to do with your particular platform, right, whether it’s a mobile app or software game or whatever it is.

You’re actively engaged, right, when those transfer from Fiat to token and back are antecedent or connected with the transferred money between individuals, right, even if you’re using just the token as a medium of exchange, then you are a money service business. You may not be a money transmitter because you may not be charging a fee for it, right? You may not be actively engaged in that, but if you’re providing that service where people are able to effectively transfer money through you, right, and whether you’re using token or using USD to do it, then I believe you are a money service business, and the process for registering as money service business isn’t inherently complex. Right? It’s a registration.

It’s not necessarily an application, right? Your money transmitter applications, if you wanted to get in all 50 states, may cost you about $85,000 right? There’s 48 jurisdictions, when you include the District of Columbia, that have some sort of money transmitter sale of checks type license, right? And so you need to be wary of that cost.

But, you know, when it comes to registering as a money service business, the process itself isn’t terribly difficult. You don’t necessarily need assistance to even do it, you know, through an attorney — you can probably do it yourself. What the key implication is, obviously, then you have to embrace and develop a pretty robust AML/KYC program for who you’re dealing with, which, you know, there’s a lot of misconception amongst regulators as to whether that’s possible in crypto. Of course it is possible, right? If you know anything about crypto, it’s very possible to do KYC/AML, and there’s a lot of good third parties, myself included, that do that service and provide that service to third parties.

So, as it relates to money service businesses, obviously, if you’re an exchange accepting fiat currency, absolutely, you are money service business. If you’re adopting the Bittrex license, and you’re still doing dollar-denominated business, then I believe you’re still a money service business. If you are, you know, a singular token or a de facto currency and you’re allowing for transmission, then I think, you know, you start to look like a money service business, and I think you have to consider the implication of not being a money service business, which can be criminal. And you see that example in all the cases brought against users of local bitcoins, right? So, something to definitely consider.

A former competitive rugby player, serial entrepreneur and, trader attorney, Adam S. Tracy offers over 17 years of progressive legal and compliance experience in the areas of corporate, commodities, cryptocurrency, litigation, payments and securities law. Adam’s experience ranges from commodities trader for oil giant BP, initial public offerings, M&A, to initial coin offerings, having represented both startups to NASDAQ-listed entities. As an early Bitcoin adapter, Adam has promoted growth of cryptocurrency and offers a unique approach to representing crypto-clients. Based in Chicago, IL, Adam graduated from the University of Notre Dame with dual degrees in Finance and Computer Applications and would later obtain his J.D. and M.B.A. from DePaul University. Adam lives outside Chicago with his six animals, which is illegal where he lives.

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Originally published at on October 1, 2018.



Adam Tracy Risk Management & Consultant Wheaton

Adam Tracy brings over twenty years experience as a growth hacker, risk management attorney, startup consultant and dealmaker.