For those that missed the news, Apple and PayPal have joined forces with Google, Amazon and Intuit in Washington, DC, to push for reforms to spur innovation in the financial system. Notably, a core item on their agenda is a federal money transmission license that would supersede the existing state-by-state regime.
Further, Financial Innovation Now (FIN), the lobby group representing the five companies, sent a letter to the Senate Banking Committee last month proposing a series of recommendations that, among other items, called for the establishment of a national money transmission requirement to be managed by the Treasury Department.
“Consumer protection is a critical part of payments regulation, but it makes no sense for different states to regulate digital money differently from one state to another,” the letter explained.
Brian Peters, executive director of FIN, stressed to CoinDesk the group is taking the money transmission issue seriously and is seeking a legislative solution.
“This is a top priority for us. We’re proactive pushing for it and we are serious about legislating this.”
While FIN admits it has no direct interest in advancing the digital currency ecosystem, it acknowledges the money transmitter issue is a common pain point.
“None of our priorities really actually delve into bitcoin or the other cryptocurrencies specifically. However, a lot of what we are pushing for does connect to the work many in that community are doing,” said Peters.
The group’s rationale for pursuing such a reform, though, will surely resonate among those in the cryptocurrency space who have experienced similar headaches securing banking partnerships and other forms of access to traditional financial resources.
“The main reason we are pursuing it is because our companies have encountered a significant amount of friction and delay in the state-by-state money transmission licensing process,” Peters said, adding:
“It’s the delay and the friction that’s really a hindrance to the ability to deliver products and services to the market in a way that is consistent with the pace of innovation in the modern economy.”
Such comments echo those that have long been put forth by innovators in the blockchain sector.
Martine Niejadlik, former chief compliance officer of Coinbase, for example, has said that bitcoin is being held back from its potential because of basic regulatory and licensing questions.
In addition to the costs of complying with scores of different sets of regulations, legal grey areas exist in states that have yet to decide whether bitcoin and other digital currencies should be considered money or be exempted from such regulations.
A federal licensing option that would allow cryptocurrency companies to circumvent state regimes could have an exponential growth effect on the industry, said Peter Van Valkenburgh, director of research at Coin Center in Washington, DC.
Van Valkenburgh continued:
“For people in the US who want to build a business using these technologies, by far the biggest impediment they face is state-by-state transmission regulations. There’s pretty much no question about that. Anything that [FIN] is going to ask for – assuming it’s in line with a federal money transmission license – is exactly what our industry needs.”
Van Valkenburgh emphasized that having a federal option could provide windfall benefits in the form of reduced compliance costs for companies like Coinbase and lower barriers to entry for startups.
“For startups, it’s the biggest thing,” he said. “Right now, you can’t start your business unless you have millions to spend on compliance. And to get venture capital financing, you need to convince your venture capitalists that it’s OK that the majority of their funding is going to lawyers.”
While there have been multiple efforts in the past two decades to create a federal money transmission framework, these endeavors have fallen short due to a lack of money, leadership and political clout, as well as pushback from state regulators keen to protect their turf.
FIN and its high-powered roster of big tech firms should encounter no such problems, explained Carol Van Cleef, a digital currency attorney with BakerHostetler in Washington.
Van Cleef told CoinDesk:
“I have long said that we’ll get a national money transmitter license when these companies come together. They’re the ones that have the resources necessary to launch the kind of legislative campaign that’s essential to get this through Congress.”
“This kind of initiative requires money and lots of it, solid executive branch and congressional relationships and experience working legislative issues,” she added.
But with Congress and the political process as unpredictable as ever, there are no guarantees that any piece of legislation – regardless of who is backing it – can secure passage.
Even if they falter in that regard, companies like Google and Apple have significantly ramped up their Washington presence in recent years and have an undeniable ability to influence conversations and drive agendas across multiple levels.
These effects are already being felt, and all of this stands to potentially boost the cryptocurrency community, FIN’s Peters said.
“There is more conversation in Washington around how financial regulation deals with modern technology than I think anyone ever would have anticipated even a year ago,” he said.
Not a panacea
Yet, legal experts are quick to point out that the creation of a federal licensing regime will hardly mean the end of all regulatory headaches for cryptocurrency companies.
“A federal license or federal charter is not going to be a panacea because the price tag is going to be high,” said Van Cleef, adding the actual burden of being regulated would likely not diminish either:
“Depending on what regulator is assigned this task, that regulator is more than likely not going to be much more sophisticated than what we see in most states. Bank-like regulatory principals and expectations likely will be the starting point.”
The overall impact of a federal licensing scheme would also depend on the fate of important questions surrounding bitcoin that have yet to be settled – such as whether cryptocurrencies should be regulated in the same way as fiat money.
“If we in the marketplace think cryptocurrencies should be regulated the way dollars are regulated, then this development would help facilitate the use of cryptocurrencies as a unit of exchange,” said Joel Telpner, an attorney with Sullivan & Worcester in New York, adding:
“But on the other hand, if we’re not ready as a collective market to concede that cryptocurrencies should be regulated in the same way as fiat money, then this development may not help that much.”
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