Connecticut Senate Passes Bill Affecting Money Transmitters Dealing in Virtual Currencies

On June 7, 2017, the Connecticut Senate passed HB 07141, an Act Concerning Secured and Unsecured Lending, by a vote of 36-0. The proposed legislation would repeal and replace the existing statue concerning permissible investments for money transmitters, Section 36a-603 of the Connecticut General Statutes, “Investments equal to amount of outstanding money transmissions in this state. Permissible investments.”

HB 07141 leaves subsection (a) of the statute intact. However, the bill revises subsection (b) to require licensed money transmitters to “hold virtual currency of the same type and amount owed or obligated to such other person.”

For example, imagine that a virtual currency exchange accepts five bitcoins from a customer who wishes to purchase Ether. In order for the exchange to comply with the new Connecticut law, it must possess five bitcoins as collateral.

By comparison, traditional money transmitters dealing in dollars have less stringent requirements.

Representative Matthew Lesser explained to ETHNews that the virtual currency stipulation is intended to prevent insolvency that may result from cryptocurrency’s volatility. This concern came from the Connecticut Department of Banking, which initiated the legislative proposal.

Matthew Smith, director of government relations and consumer affairs at the Connecticut Department of Banking, told ETHNews that the legislation enables an “apples to apples” capital requirement, which is designed to “ease industry confusion.” With a capital base, money transmitters who deal in virtual currency will be more secure in case of a lawsuit, said Smith. It’s worth noting that HB 07141 applies to all money transmitters who operate in Connecticut, regardless of where the business is based.

In 2015, the Connecticut Department of Banking received wide-ranging regulatory power over virtual currency through HB 6800. At the time, Jeffrey Alberts, the head of Pryor Cashman’s white collar defense and investigations practice, complained that the banking commissioner was granted vague and overbroad powers.

HB 07141 will now go to Connecticut Governor Dannel P. Malloy for his signature or veto. If everything goes smoothly, anticipate a decision by the Governor in early-to-mid July.