In the on-going saga of exchange regulations, we now see Coinbase entering the exchange business. The company recently announced it is “the first regulated bitcoin exchange based in the U.S” on their company blog post. The surrounding hype regarding the exchange launch and the regulatory approval in 24 states and territories brought an even closer look regarding the regulatory status of the company’s new exchange initiative.
The Coinbase website contained a support page indicating which states and territories were licensed at the time of launch:
Coin Fire’s investigative team has been following up with regulators in each state after a statement from California via the California Department of Business Oversight led many to question the regulatory approval of the Coinbase Exchange. The statement from Department of Business Oversight Commissioner Jan Lynn Owen read,
Numerous press accounts about Coinbase’s Jan. 26 launch of Coinbase Exchange erroneously reported the Exchange has received regulatory approval from the State of California. The California Department of Business Oversight has not decided whether to regulate virtual currency transactions, or the businesses that arrange such transactions, under the state’s Money Transmission Act. California consumers should be aware Coinbase Exchange is not regulated or licensed by the State.
In a report from The New York Times, further evidence that Coinbase may not have secured all of the necessary regulatory approvals began to surface. Matthew Anderson, a spokesperson for Ben Lawsky and NYDFS, told the Times,
We are working with several companies, including Coinbase, on licensing and will continue to move forward expeditiously, That said, we have not yet issued any licenses to virtual currency firms.
Coin Fire has contacted each of the states listed on the Coinbase support page and have included the results below.[table id=3 /]
The regulatory questions have raised additional questions by securities law-firm Tripp Levy PLLC. The national securities and shareholder rights law firm announced this week that it is investigating Coinbase, Inc. for allegedly making false and misleading statements to prospective and current users of Coinbase’s Bitcoin Exchange.
The firm put out a statement saying,
On January 26, 2015, Coinbase announced that it launched the first regulated Bitcoin Exchange in the United States, and that it is licensed to do business in 25 states, including New York and California. Coinbase’s statement may have artificially inflated the price of Bitcoins as the cybercurrency rose to $263. However, it was later revealed by New York’s Department of Financial Services and California’s Department of Business Oversight that Coinbase did not have the licenses necessary to operate as a Bitcoin Exchange in New York or California. Following this announcement, the price of a Bitcoin fell to $233.
The firm is seeking additional information from those impacted by the claims on the Tripp Levy website.
While many companies apply for MSB status with FinCen, they are still required to abide by state regulations and guidelines for money exchange services. It is important for each MSB to ensure that it obtains and maintains appropriate state registrations and licensing in addition to registration with FinCEN as an MSB. Banks are required to confirm that their MSB customers have obtained necessary state licenses as part of managing their BSA risk. State law often contains specific requirements outside the scope of the Bank Secrecy Act such as record keeping, pricing, and marketing constraints.