Uniform Law Commission Seeks Unified Regulation For Virtual Currencies In America

The Uniform Law Commission (ULC) recently released the Regulation of Virtual Currencies Act, to serve as a “discussion only” draft for the committee’s upcoming meeting on 9 Oct. The committee will be considering “the need and feasibility of drafting state regulation of virtual currencies.”

The battle to find a balance between regulation and innovation has been ongoing, and became heated when the New York Department of Financial Services (NYDFS) launched an inquiry into the regulatory guidelines of digital currency in 2013. Former NYDFS Superintendent Benjamin Lawsky successfully implemented the BitLicense on June 3, 2015. It was the first comprehensive legal framework for regulating digital currency firms.

“The BitLicense – which is the product of a nearly two-year-long NYDFS inquiry – contains key consumer protection, anti-money laundering compliance, and cyber security rules tailored for digital currency companies.”
— – NYDFS

Despite a slew of businesses exiting New York due to the regulation, Circle Internet Financial became the first company to have their application approved, in September. “Issuing the first BitLicense is an important milestone in the long-term development of the virtual currency industry. Putting in place rules of the road that help protect consumers from loss or theft and root out illicit activity is vital to building trust in this new financial technology. We will continue to move forward on evaluating and approving additional BitLicenses,” said the Acting Superintendent of Financial Services, Anthony Albanese, in a press release.

“In many ways, the fact that we found ourselves working on an issue as unexpected as digital currency speaks to the extraordinarily dynamic nature of the financial markets and financial technology right now.”
— – Benjamin Lawsky

The proposed Californian regulatory bill AB1326 was an attempt to mirror New York’s effort to regulate digital currencies. It was introduced by Assembly member Matthew Dababneh, in February, with a stated aim of protecting consumers within the digital currency industry.

“This bill would require each licensee to maintain at all times such capital as the commissioner determines, subject to specified factors, is sufficient to ensure the safety and soundness of the licensee, its ongoing operations, and maintain consumer protection.”
— – AB1326

AB1326 was met with mixed reviews. The Electronic Frontier Foundation had “philosophical issues with” with the bill. “Both the type of regulatory scheme it’s proposing as well as the timing of this regulation in relation to the development of new virtual currency technologies—and we also have concerns about how the bill is technically written.”

However, Jerry Brito Executive Director of Coin Center, was in full support of an improved version: “Bottom line: it’s not a choice between this bill and no regulation; it’s a choice between the sensible regulation in AB 1326—even if it could be improved—and the ill-fitting regulation of the Money Transmission Act.”

“If this bill fails, we may end up with the aggressive and industry-stunting regulation that we’re all seeking to avoid. And if this bill fails, we’d also lose the best bill we’ve seen that could be a model for other states and a counterweight to the BitLicense.”
— – Jerry Brito, Coin Center Executive Director

The California bill was eventually shelved, and now the Uniform Law Commission (ULC) are taking the initiative. The ULC is designed to bring clarity and stability to areas of state and statutory law.

The ULC is currently headquartered in Chicago and has produced more than 300 uniform acts, which focus on critical topics, including commercial law, family and domestic relations law, and estates. The commission consists of approximately 350 commissioners.

The signature product of the commission was the Uniform Commercial Code, which took ten years to complete. Enacted in the ‘40s, the code is a comprehensive set of laws governing commercial transactions between U.S. states and territories. These transactions include borrowing money, leases, contracts, and the sale of goods, which lead to a partnership with the American Law Institute. 14 years later, it had been enacted in every state of America.

Now firmly focused on 21st century regulation, the ULC is working on virtual currencies, defined “as a form of electronic value, the value of which depends on the market. It is not backed by government (so that it lacks status as legal tender).” The commission’s interest in digital currency stems from its ability to be “safer from hacking, often cheaper and faster, and has finality of payment.”

“Virtual currencies have legitimate purposes and can be purchased, sold, and exchanged with other types of virtual currencies or real currencies.”
— – Uniform Law Commission

As some states have shown interest in the regulation of digital currencies, the ULC advises that others are sure to follow suit. The ULC will be looking into how to take these proposed legal frameworks one step further. “In the absence of an overarching federal payments regulatory framework, these state laws need to be harmonized to the extent possible.”