Re: Intro

On 08/26/2013 09:48 PM, Margaux Avedisian wrote:
> Dwolla partnered with a credit union so they fall under their 
> compliance. A lot of Bitcoin companies want to partner with a bank or
> credit union so they are operating legally but also to hold the US
> dollars.

Right, but I think this is only part of the story. I've been talking
with the folks that founded the Internet Archive Federal Credit Union
(IAFCU). You can see them talking about rescuing the Bitcoin exchanges
from a banking/regulatory perspective here:

Internet Archive provides Bitcoin Sanctuary:
https://www.youtube.com/watch?v=RD6fVNGEnlI

For the techies on this list, one of the founders is Brewster Kahle (who
helped build WAIS, Alexa, Internet Archive, and the Way Back machine):

http://en.wikipedia.org/wiki/Brewster_Kahle

It's turning out that partnering w/ a credit union might not be enough
in the coming year as there is new regulation going out in 12 states
that says that you need a money transmitter license even if you pair up
with a credit union.

This is information that I got from a few of the folks at Meracord:

http://www.meracord.com/

They have "compliance packages" that they'll gladly sell you for all 50
states that includes full Know Your Customer / Anti-Money Laundering /
FDIC-insured accounting with the necessary money transmitter licenses
thrown in. The package levels they have are $50K/setup + $1K/year, or
$15K setup + $5K/month, which is in range of some of the larger
exchanges. Then again, they have a good reason to say that partnering w/
a Federal Credit Union isn't going to be enough in the coming months.

So, it could be that the regulatory problem may need not only a banking
partner to be found, but extra money transmission licenses as well...
and this is only in the US. It gets more complicated when you're dealing
with stuff overseas.

This is all a big problem for the standards that we're working on
because if we want to put a large number of these advanced financial
tools into the hands of everyday people, we're going to have to build
the technology to work with the current regulatory framework. If we're
smart about it, we'd build the technology in such a way that assumes a
constantly changing regulatory framework, with bits and pieces that can
be added/removed for Know Your Customer (KYC) and Anti-Money Laundering
activities.

For example, JSON-LD + Secure Messaging + digitally signed endorsements
from local governments would be a good way of mitigating the time cost
of having to go through KYC over and over and over again (from the
customers side). It would also be a good way of mitigating the financial
cost of having every Bitcoin and PaySwarm exchange/payment processor
from having to pay for a KYC check on every customer they onboard into
their system.

> I was sending this email, I just saw that Tradehill announced their 
> partnership with a credit union.

Yep, they partnered w/ the Internet Archive Federal Credit Union. Jordan
Modell (their CEO) is a super helpful guy and really wants to help new
financial networks such as Bitcoin, Ripple, and PaySwarm succeed. I'm
currently trying to get some folks from the IAFCU to join this mailing list.

> Partnering with a bank, credit union or a company that already has 
> the money transmitting licensing seems to be the fastest and least 
> expensive way to become compliant.

For now, it seems. Anyone have any more news on how Kansas has started
to require money transmitter licenses from folks that are already
partnered w/ credit unions or commercial banks?

> Also I've heard that it may be the best way to eventually get CA and 
> NY state licensing because you can legally demonstrate how you are a 
> legitimate business (of course stringent KYC and other regulatory 
> compliant procedures are in place). For CA, you have to apply to
> even apply for licensing and I believe the company needs a million
> dollars in the bank.

Here are the requirements for California:

http://www.moneytransmitterlaw.com/state-laws/california/

Surety bonding requirements range from $250,000 to $7,000,000. $5,000
application fee. I don't see anything about needing $1M in the bank...
but you do need at least enough to cover all outstanding amounts that
you're holding on behalf of customers.

CA Money transmitter legislation is here:

http://www.leginfo.ca.gov/cgi-bin/displaycode?section=fin&group=01001-02000&file=2000-2003

Any comments on Kansas or the 12 other states that may not allow credit
union partnering, Margaux?

-- manu

-- 
Manu Sporny (skype: msporny, twitter: manusporny, G+: +Manu Sporny)
Founder/CEO - Digital Bazaar, Inc.
blog: Meritora - Web payments commercial launch
http://blog.meritora.com/launch/

Received on Wednesday, 28 August 2013 04:43:23 UTC