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American Bankers Association Proposes State Regulatory Framework for Virtual Currencies

The [American Bankers Association](http://www.aba.com/) (ABA) has proposed a draft model of regulatory framework for virtual currency activities such as Bitcoin to the [Conference of State Bank Supervisors](http://www.csbs.org/) (CSBS).

coinsetter bannerThe ABA is a trade association for the American banking industry, which involves itself in several issues that affect the industry, including lobbying. The CSBS is an American organization of banking regulators from all 50 states, with a goal to advance the quality and effectiveness of regulation, consumer protection and other duties. Both ABA and CSBS are more than 100 years old and have a considerable influence in their respective areas.

The ABA made the case that even though the virtual currency economy doesn’t feed directly through the traditional payments systems, as its usage grows, it will become more inter-linked to our traditional payments systems and failures could have a system-wide consequence, mentioning how the failure of Mt. Gox meant a fall in value of Bitcoin. To overcome these challenges, the ABA has proposed a licensing approach to regulation, which was also the approach taken by Ben Lawsky in designing the so-called ‘BitLicense’ regulatory framework for New York based businesses and businesses operating in New York.

The ABA also proposed areas that these regulations should target – consumer protection, security, creating a level playing field for all businesses in the space and meeting consumer and business needs. The ABA argues that the same level of consumer expectations, like disputing a charge, should apply to all payments system, and that for the consumers to have enough faith in the system to continue using it, the payment systems need to be subject to sufficient government oversight.

The ABA is also concerned about some states going ahead and creating their own licensing requirements that might differ from other states. Ultimately, the ABA wants a uniform national standard that can be adopted by states, so that virtual currency operators can easily comply with regulations in multiple states.

For monitoring and sharing information, the ABA has proposed creating a national database with the ability to share licensing and enforcement data in real time. The ABA says it wants to follow the model of Nationwide Mortgage Licensing System, which is a registry of mortgage brokers and originators that was launched in 2008. The ABA believes the creation of such a database and information-sharing mechanism will allow regulators to easily verify the status of a business in other states and allow consumers to check that a business is actually registered before doing business with it.

Notably, the ABA wants virtual currency businesses to fully comply with BSA/AML/KYC requirements at the same level as the banks, and ensure that regulated banks are not subject to new regulations. The justification given for this is that banks are already subject to extensive regulation and oversight, and subjecting banks to duplicate regulations would divert the bank’s resources while providing no extra consumer protection.


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