Bitcoin ATMs are a type of automated teller machine that allows users to buy or sell bitcoins using cash or debit cards. Crypto ATM providers generally qualify as “ATM operators” under state law. An ATM operator is a person or company that owns and operates one or more automated teller machines (ATMs). ATM operators can be financial institutions, independent ATM deployers, or other types of businesses that provide ATM services to customers.
Bitcoin ATM operators are generally subject to FinCEN’s money services business (MSB) registration requirements. FinCEN is a bureau of the U.S. Department of the Treasury that is responsible for administering and enforcing the Bank Secrecy Act (BSA) regulations. The BSA requires MSBs to register with FinCEN and comply with certain reporting and record-keeping requirements, including implementing effective anti-money laundering (AML) and know-your-customer (KYC) policies.
Under FinCEN’s guidance, a Bitcoin ATM operator that facilitates the exchange of bitcoins for fiat currency or vice versa is considered an MSB, and therefore subject to FinCEN’s registration and reporting requirements. This means that Bitcoin ATM operators must register with FinCEN as an MSB and implement an AML/KYC compliance program to prevent money laundering and other illegal activities.
FinCEN has also issued further guidance in 2019 that specifically addresses the regulatory requirements for Bitcoin ATMs. The guidance clarifies that Bitcoin ATM operators are subject to the same BSA requirements as other MSBs, and provides examples of specific AML and KYC measures that Bitcoin ATM operators can take to comply with the regulations. Some of the key recommendations in FinCEN’s guidance include implementing a risk-based approach to AML/KYC compliance, conducting ongoing monitoring of transactions, maintaining accurate records, and reporting suspicious activity.
In addition there are state law considerations. Forty (40) states currently require fiat-based ATM operators to become licensed as money transmitters if they are engaged in transmitting money, including cash withdrawals and deposits. However, there are currently only twenty-one (23) states that require money transmitter licenses for Bitcoin ATMs, including:
- New Hampshire
- New Jersey
- New York
- North Dakota
- Rhode Island
- South Carolina
- West Virginia
The reason why some states require licensing for Bitcoin ATMs while other states do not can be attributed to several factors, including differences in state laws and regulatory frameworks, varying interpretations of existing regulations, and concerns over consumer protection and financial crime prevention. A primary regulatory interpretation concerns the classification of Bitcoin and other cryptocurrencies as “money” or “currency” – which would likely trigger licensing requirement. Some states have issued guidance or laws that do not consider Bitcoin to be a form of money, including:
- Texas: In 2017, the Texas Department of Banking issued a memo stating that cryptocurrencies, including Bitcoin, are not “money” or “currency” under Texas law.
- Kansas: In 2019, the Kansas Office of the State Bank Commissioner issued guidance stating that cryptocurrencies, including Bitcoin, are not considered to be legal tender or currency under Kansas law.
- North Carolina: In 2016, the North Carolina Commissioner of Banks issued a statement clarifying that virtual currencies, including Bitcoin, are not considered to be legal tender or money under North Carolina law.
- Montana: In 2015, the Montana Department of Administration issued guidance stating that Bitcoin and other cryptocurrencies are not considered legal tender in Montana and are not subject to the state’s money transmitter laws.
- Wyoming: In 2019, Wyoming passed legislation recognizing cryptocurrencies as property and exempting them from state property taxation, but did not classify them as legal tender or currency.
However, the licensing requirements for Bitcoin ATM operators in any state can vary depending on the specific activities (such as the transfer of cryptocurrency) of the operator and the exemptions that may apply.
Finally, as with any crypto-related business, Bitcoin ATM operators can be subject to a myriad of consumer protection laws, including:
- Truth in Lending Act (TILA): Bitcoin ATM operators that offer loans or extend credit to users may be subject to the TILA, which requires lenders to provide certain disclosures to borrowers, including the annual percentage rate (APR) and other fees.
- Electronic Funds Transfer Act (EFTA): Bitcoin ATM operators that provide electronic fund transfers (EFTs) may be subject to the EFTA, which requires certain disclosures and protections for consumers, including the right to dispute errors and unauthorized transactions.
- Unfair, Deceptive, or Abusive Acts or Practices (UDAAP): Bitcoin ATM operators are subject to the UDAAP provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which prohibit unfair, deceptive, or abusive acts or practices that harm consumers.
- Consumer Financial Protection Bureau (CFPB) Regulations: Bitcoin ATM operators may be subject to regulations issued by the CFPB, which is responsible for enforcing federal consumer financial laws and protecting consumers from unfair, deceptive, or abusive practices.
- State Consumer Protection Laws: Bitcoin ATM operators are also subject to state consumer protection laws, which may include requirements for disclosures, advertising, and other protections for consumers.
Notably, locating a Bitcoin ATM upon your property does not trigger any specific licensing requirements. However, many states will require a simple notice and registration requirement of its location (as is the same for cash-based ATMs) and further impose certain security requirements upon the property owner housing the ATM.
About Adam Tracy
Adam Tracy is a payments expert and entrepreneur who specializes in payment systems, blockchain technology, digital currencies, and other emerging technologies. He is the founder of Blockrunner, LLC that provides consulting services to clients in the blockchain, payments and cryptocurrency arenas.
Tracy has been involved in the payments industry as an attorney, consultant and entrepreneur since 2005, while he was become an expert in blockchain and cryptocurrency since its advent in 2013. Tracy has worked with a wide range of clients, including startups, established businesses, and investor – both in the United States and worldwide. He has advised clients on a wide range of compliance, legal and operational issues related to payment transfer systems, crypto token generation and architecture, cryptocurrency exchanges, regulatory licensing, smart contracts, and other blockchain applications.
In addition to his consulting work, Tracy has founded several companies in the payments, blockchain and cryptocurrency space, including a digital asset hedge fund, licensed electronic money institution and a blockchain-based tokenization platform. He is also a proponent of decentralized finance (DeFi) and has been involved in various DeFi projects.
Tracy is also a frequent speaker and writer on blockchain and cryptocurrency topics. He has been featured in a wide range of publications, including Forbes, CoinDesk, and Bitcoin Magazine.
Find Adam: https://linktr.ee/adamtracy