FBBA Opinion On Florida OFR CMJ Petition

by Andrea O’Sullivan & Samuel Armes

Overbroad Money Transmission Enforcement Demonstrates Need for Legislative Update

If a business is not engaging in a regulated activity, it should not be subject to those regulations. This should be true regardless of the form that any unregulated activity may take. But when it comes to money transmission regulations in Florida, these rules may apply to business activities not based on the activity itself, but rather on the technology that is involved simply due to the fact that the state has not updated legislative language.

Recently, Florida’s Office of Financial Regulation, the entity charged with enforcing state money transmission laws, stated that a business must procure a costly money transmission license in order to engage in most cryptocurrency activities, even if that business is not a custodial third party. This decision was not based primarily in legislation, or even the unique opinion of OFR, but rather in a court precedent set by State v. Espinoza

To provide an analogy, it would be like requiring a corner market to obtain a license merely because it will make change for customers. This benign activity is clearly not what was intended to be regulated by money transmission laws. Yet because cryptocurrency is involved, the matter seems less clear.

Cryptocurrency technology allows people to send value directly to each other without the need to use a third party. At no point are the funds controlled by any entity that can steal or lose money. This means that money transmission regulations that are intended to protect customers from theft or fraud are irrelevant and should not apply.

Of course, some cryptocurrency users like custodial third-party services. They may not want to worry about providing security or they may want fast access to trading markets. So many cryptocurrency users patronize businesses that hold funds on their behalf. In this case, the custodian could indeed lose or steal funds. In this case, money transmission regulations are appropriate.

The FBBA will continue to work with its various partners around the State of Florida to push legislation during Florida’s next legislative session to ensure the confusion on this regulatory language is solved.

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