Cryptocurrency has become mainstream in many industries, and legislation is finally starting to catch up. State and federal legislators are beginning to pass laws and regulations to manage how cryptocurrency, or crypto, is used in trade. For example, Florida recently passed HB 273, a bill that amends the Florida Control of Money Laundering in Money Services Business Act to account for crypto.
This bill is a critical update that will significantly affect how every business in the state approaches cryptocurrencies as a method of transaction. It also revises the definition of “money transmitters” and provides new rules for electronic currency transmission.
What HB 273 Accomplishes
The goal of HB 273 is to manage the proliferation of cryptocurrency as an alternative means of exchange compared to traditional currencies like the U.S. dollar. The bill does not bar individuals or businesses from using crypto, but it does place significant new restrictions on using “virtual currencies.”
Virtual currencies are defined as “a medium of exchange in electronic or digital format that is not currency.” The law specifically excludes mediums of exchange in online games, points for consumer rewards programs, and any other point or exchange medium that cannot be redeemed for traditional currencies from this definition. The definition is purposefully broad to ensure that it applies to all “real-world” transactions without penalizing existing, stable forms of exchange.
All businesses that intend to transact business involving virtual currency between two other parties must acquire a money transmitter license. They must also maintain a reserve in the amount of the specific virtual currency being transferred until the transfer is complete. For instance, if a customer moves one Bitcoin to another person, the organization must maintain at least one Bitcoin on hand until the transaction is done and cannot substitute it with other mediums of exchange. Money transmitters include entities like PayPal and Venmo, which allow parties to directly transfer currency and virtual currency from one person to another.
In addition, payment instrument sellers are strictly prohibited from performing transactions involving virtual currencies. In contrast, payment instrument sellers sell money orders and similar financial instruments, such as Western Union. Individuals and organizations retain the right to sell cryptocurrency under the bill so long as they are not payment instrument sellers.
What to Expect From New Restrictions on Cryptocurrency Use in Florida
HB 273 primarily impacts companies that explicitly manage currency exchange, but it has secondary effects on many other corporations. First, explicitly defining virtual currencies exempts crypto from laws mentioning the U.S. dollar and other traditional mediums of exchange. For instance, a business may not pay its debts to the state in cryptocurrency. It must report income from the sale of held cryptocurrency as capital gains and treat it as an investment instead of liquid capital.
Second, businesses who use third parties to accept cryptocurrencies to make sales may face limited options. Many small organizations sprouted up, alleging they were secure ways to transfer crypto from buyers to sellers. However, these companies lacked oversight, and some actively stole funds from users. By requiring these organizations to have money transmitter licenses, Florida will likely dramatically reduce the number that can legally operate in the state and provide better oversight over those that remain.
Finally, by requiring money transmitters to maintain a reserve of the specific currency, the law protects buyers and sellers from unfair substitutions or the loss of funds. The volatility of cryptocurrency is well-known, with wide swings in value occurring in just hours. Many transmitters would attempt to sell a cryptocurrency to make a profit with the intention to repurchase it before transactions were complete. If this failed, the recipient would never receive the crypto they were owed. The reserve rule prevents this from happening.
Protect Your Cashflow With Expert Legal Assistance
HB 273 is a valuable protection for any company using crypto. While it does increase restrictions on the use of cryptocurrencies in the corporate world, it also ensures that the transmitters involved will be subject to more oversight, reducing the risk of fraud. If you are concerned about how HB 273 may impact your business, do not hesitate to consult with the expert commercial attorneys at EPGD Business Law. Our skilled associates will help you determine the best way to proceed with cryptocurrency while complying with the bill’s restrictions. Schedule your consultation today to learn more about how we can help you.