Has the Division issued any Guidance regarding the licensing of cryptocurrency businesses related to cryptocurrency kiosks or BTM operators?
Yes. Effective August 31, 2022, the Division of Financial Institutions issued Interpretive Guidance 2022-01, regarding the Licensing of Cryptocurrency Businesses Pursuant to the Ohio Money Transmitters Act.
The Division’s new guidance clarifies that in general a person engaged in the buying or selling of cryptocurrency as a business qualifies as a money transmitter for the purposes of the Ohio Money Transmitters Act (“OMTA”) and must obtain an Ohio money transmitter license before the person provides money transmission services to Ohioans. Under Ohio law, money transmission encompasses receiving and transmitting money or its equivalent from one person to the same or another person, at the same at or another time, and at the same or another place. The Division has historically considered cryptocurrency to be money or its equivalent for the purposes of the OMTA.
Interpretive Guidance 2022-01 supersedes and replaces Interpretive Guidance 2020-01. The Division’s older, now rescinded guidance indicated that the Division did not consider a two-party, cryptocurrency for sovereign currency exchange, in which the company operating the exchange was the counterparty, to be money transmission requiring a license. In practice, this guidance permitted certain companies, including cryptocurrency kiosk or ATM (“BTM”) operators, to operate in Ohio without a money transmitter license. Upon further review of the technology and capabilities of BTMs, the Division is now aware that these processes permit digital assets to be purchased by consumers and sent into digital wallets owned by third parties. Such transactions are money transmissions. The sole exception is if the BTM operator can conclusively verify in all instances that the individual conducting the transaction is the owner of the wallet receiving the funds. If a company will not or cannot verify ownership, it must seek licensure.
Effective as of August 31, 2022, companies not already operating BTMs in Ohio must obtain a money transmitter license, or a written determination from the Division, prior to commencing such activity. Companies already operating BTMs in Ohio as of August 31, 2022, must, unless otherwise notified by the Division, submit a substantially complete money transmitter license application to the Division via the Nationwide Multistate Licensing System on or before October 31, 2022.
Do persons operating cryptocurrency kiosks or cryptocurrency ATMs, or persons operating an exchange platform or persons providing cryptocurrency storage via a hosted wallet need to have an Ohio Money Transmitter license?
Definition of money transmission under the OMTA
Under the Ohio Money Transmitters Act (“OMTA”) the term “transmit money” means to receive, directly or indirectly and by any means, money or its equivalent from a person and to deliver, pay, or make accessible, by any means, method, manner, or device, whether or not a payment instrument is used, the money received or its equivalent to the same or another person, at the same or another time, and at the same or another place, but does not include transactions in which the recipient of the money or its equivalent is the principal or authorized representative of the principal in a transaction for which the money or its equivalent is received, other than the transmission of money or its equivalent. See R.C. 1315.01(G). For purposes of the OMTA, the Division considers cryptocurrencies, like Bitcoin, to be money or its equivalent.
Licensing requirements for cryptocurrency businesses
Under Ohio law, money transmission encompasses receiving and transmitting money or its equivalent from one person to the same or another person, at the same at or another time, and at the same or another place. Therefore, in general a person engaged in the buying or selling of cryptocurrency as a business qualifies as a money transmitter for the purposes of the OMTA and must obtain an Ohio money transmitter license before the person provides services to Ohioans. Examples of cryptocurrency service providers who must obtain a money transmitter license pursuant to the OMTA include:
- Persons operating cryptocurrency kiosks or cryptocurrency ATMs. A person who operates a cryptocurrency kiosk or ATM to facilitate the exchange of cryptocurrency for fiat currency or another type of cryptocurrency, or fiat currency to cryptocurrency, is a money transmitter under the OMTA unless the company operating the kiosk or ATM can conclusively verify in all instances that the individual conducting the transaction is the owner of the wallet receiving the funds. It does not matter whether the kiosk/ATM operator draws upon its own cryptocurrency in its possession or whether the operator connects to a cryptocurrency exchanger to effectuate the transaction.
- Persons operating an exchange platform who facilitate the transfer of fiat or virtual currencies. A person that facilitates transfers of one type of cryptocurrency to another type of cryptocurrency, or cryptocurrency for fiat currency (or vice versa) is a money transmitter.
- Persons providing cryptocurrency storage via a hosted wallet. A person that acts as an intermediary or provides an account to receive, store, and transmit virtual currency on behalf of another is a money transmitter. If the person interacts with the payment system on behalf of the owner of the virtual currency or has total independent control over the value of the virtual currency, the person is a money transmitter. A person that facilitates the creation of a wallet (by creating software) but does not interact with the payment system of have independent control over the value is generally not a money transmitter. Similarly, a person that creates a wallet that requires more than one private key for the wallet owner(s) to effect transactions (multiple-signature wallets) and restricts its role to maintaining possession of one key for additional validation is generally not a money transmitter.
- Persons providing payment processing services involving virtual currency. A person that acts as an intermediary to enable merchants to accept virtual currency from customers in exchange for goods and services is a money transmitter. Although the OMTA has an exclusion for traditional payment processors, payment processors that transmit virtual currency do not satisfy the exclusion as they do not operate entirely through clearing and settlement systems that only admit BSA-regulated financial institutions as members.
What is the minimum net worth requirement for Ohio money transmitters?
The Ohio Money Transmitters Act (OMTA) requires a licensed money transmitter to maintain at all times a minimum net worth of $500,000, calculated in accordance with GAAP. See R.C. 1315.05.
What is the bonding requirement?
A licensed money transmitter must maintain a security device that shall run to the Superintendent for the benefit of any claimants against the licensee, to secure the faithful performance of the obligations of the licensee with respect to its receipt of money from persons in this state for transmission. The minimum amount for the security device is $300,000. Instructions for calculating it are shown on the Security Device Calculation page.
What is PI?
The Ohio Money Transmitters Act requires a licensed money transmitter to maintain permissible investments (“PI”) having an aggregate value of at least the aggregate amount of all of the licensee’s outstandings received from persons in the United States, directly and indirectly and through authorized delegates, to the extent reported to the licensee. Investments that qualify as permissible investments are listed at R.C. 1315.06(B).
Are agent receivables an asset that qualifies for PI?
Yes. Per R.C. 1315.06(B)(8), receivables that are due to a licensee from the Licensee’s authorized delegates and are not past due or doubtful of collection are eligible for PI. Receivables due to the licensee from an authorized delegate that are more than seven calendar days delinquent shall be considered "past due and doubtful for collection." Receivables past due and doubtful for collection shall not be considered permissible investments.
Should my company have its financial statements audited?
Yes, R.C. 1315.08(B) requires licensed money transmitters to have their financial statements audited. Audited financial statements must be submitted to the Division within 120 days of the end of the company's fiscal year.
If my company is a subsidiary of another company, must I submit the parent company's audited financial statements?
Yes, if a licensed money transmitter is a subsidiary of another company, the licensee must submit the audited consolidated financial statements of its parent company within 120 days of the end of the company's fiscal year. See R.C. 1315.08(B).
Does Ohio law require quarterly reporting by licensed money transmitters?
Yes, the OMTA requires licensed money transmitters to provide quarterly call reports within 45 days of the quarter end. The following information must be submitted to the Division each quarter:
- The licensee's unaudited, unconsolidated financial statements as of the end of the calendar quarter, including a balance sheet, income statement, statement of changes in shareholder's equity, and statement of cash flows;
- A statement for the calendar quarter of the number of money transmission transactions undertaken by the licensee in Ohio and in the United States in total, the dollar amount of those transactions, and the number and dollar amount of those transactions currently outstanding;
- A schedule of the licensee's permissible investments and their market values as of the end of the calendar quarter; and
- A schedule of the locations, if any, within Ohio at which the licensee is conducting business directly or through its authorized delegates.
Do I need to register my company with FinCEN?
Yes, in general, money services business must register with the Financial Crimes enforcement Network (“FinCEN”). Information about FinCEN registration is available on FinCEN's website.
What is the OFAC list and where can I find it?
Federal law and regulations prohibit business with those on the Office of Foreign Assets Control (“OFAC”) lists. OFAC publishes a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific. Collectively, such individuals and companies are called "Specially Designated Nationals" or "SDNs." Their assets are blocked and U.S. persons are generally prohibited from dealing with them. Licensed money transmitters and their agents should scan this list, which is updated periodically, before doing business with a customer, sender, or receiver of money.
Fees and Assessments
What is the license application fee?
The application fee for a new money transmitter license is $5,000.
What is the change in control fee?
The cost to file a change of control application with the Division is $2,500.
How is the annual assessment calculated?
The annual assessment equals the amount of cash needed to be raised by the Division for the operation of the money transmitter supervision program for the next fiscal year, running July 1 – June 30. This cash amount is based on the authorized appropriation of the Division, minus the cash-on-hand (considering any carryover amounts, other income such as licensing fees, and less a three-month reserve).
Each company’s assessment contribution is prorated based on the verified dollar volume of business conducted in the State of Ohio for the preceding year, ending December 31. Assessment fee bills are sent out June 1, with a due date of July 1.
What are the direct examination costs?
Licensees are only charged direct examination costs for on-site Ohio examinations, such as travel costs, hotel, and meals. Licensees are not charged an hourly or daily examination rate. Off-site examinations do not incur direct costs.
Ohio Money Transmitters Act
The OMTA is codified at R.C. Chapter 1315.