How To Get a Crypto License in the USA

Obtaining a license to operate a cryptocurrency business in the USA has never been more important for ensuring regulatory compliance and market trust. As the digital currency sector grows, the regulatory landscape has become increasingly complex, with both federal and state-level requirements to navigate. This guide on how to get a crypto license in the USA provides a general overview of what a cryptocurrency license entails, the federal and state regulations that govern the industry, and the steps necessary to secure the appropriate licenses. By following the detailed steps below, you can ensure your business operates legally and efficiently within the USA’s regulatory framework.

What Exactly Is a Cryptocurrency License?

A cryptocurrency license is a regulatory authorization required for businesses to legally operate in the digital currency space. It ensures that companies comply with federal and state regulations designed to prevent money laundering, fraud, and other illegal activities. Different types of licenses may be needed depending on the nature of the business, such as a Money Service Business license for crypto-to-crypto transactions or a Money Transmitter License for crypto-to-fiat exchanges. Obtaining these licenses involves meeting strict requirements set by various regulatory bodies, including federal and state-specific authorities. Securing a cryptocurrency license not only legitimizes a business but also builds trust with customers and partners.

Understanding the Regulatory Framework for Crypto Licenses in the USA

Ensuring your crypto business operates legally in the USA requires a thorough understanding of the regulatory framework for cryptocurrency licenses. This framework is divided into federal and state-level regulations, each with its own set of rules and requirements. While federal regulations provide a baseline for compliance across the country, state regulations can vary significantly, adding another layer of complexity. It’s important to grasp these differences because they impact the specific licenses you need, the application process, and your ongoing compliance obligations.

Federal Regulatory Bodies

Financial Crimes Enforcement Network (FinCEN): The FinCEN oversees anti-money laundering (AML) compliance for businesses engaged in money transmission, including crypto exchanges. FinCEN’s regulations are crucial for preventing illegal activities like money laundering and terrorism financing.

Securities and Exchange Commission (SEC): The SEC regulates initial coin offerings (ICOs) and tokens that qualify as securities. SEC compliance is vital to ensure that investments are protected and fraudulent activities are minimized.

Commodity Futures Trading Commission (CFTC): The CFTC supervises the trading of crypto futures and derivatives. The CFTC’s oversight ensures the integrity and transparency of these financial markets.

Internal Revenue Service (IRS): The IRS handles taxation matters for cryptocurrency transactions and holdings. Compliance with IRS regulations ensures that crypto businesses meet their tax obligations and avoid legal penalties.

Office of Foreign Assets Control (OFAC): OFAC enforces sanctions and oversees transactions involving foreign entities. Adhering to OFAC guidelines prevents businesses from engaging in prohibited transactions that could lead to severe penalties.

State-Level Regulations

Money Transmitter License (MTL): Required by most states for businesses that handle crypto-to-fiat transactions. Each state has its own specific requirements and application processes, making state-level compliance critical for legal operation in multiple jurisdictions.

BitLicense (New York): Bitlicense is a comprehensive license required for any crypto business operating in New York, covering a wide range of activities from exchanges to custodial services. The BitLicense is known for its rigorous standards, providing a high level of consumer protection and operational integrity.

Money Service Business (MSB) and Money Transmitter License (MTL)

In the United States, businesses involved in cryptocurrency transactions must comply with specific licensing requirements, primarily the Money Service Business (MSB) and Money Transmitter License (MTL).

Money Service Business (MSB)

A Money Service Business is a type of financial institution regulated by the Financial Crimes Enforcement Network. MSBs encompass businesses that provide services like money transfers, currency exchange, and virtual currency transactions. For cryptocurrency companies, obtaining an MSB registration is crucial for compliance with federal anti-money laundering regulations. This process involves registering with FinCEN by filing the appropriate form and renewing the registration every two years.

Money Transmitter License (MTL)

A Money Transmitter License is required at the state level for businesses that engage in the transfer of money or digital currency. The requirements for an MTL vary by state, but generally involve submitting a detailed application to the state regulatory authority, providing information about the business’s operations, financial condition, and compliance programs. Businesses must also adhere to state-specific regulations, which may include maintaining certain financial thresholds, bonding requirements, and regular reporting of transactions. Additionally, since each state has its own regulations, businesses operating in multiple states may need to obtain an MTL in each jurisdiction where they conduct business.

A key difference between MSB and MTL lies in the scope and level of regulation. MSBs are regulated at the federal level by FinCEN and cover a broad range of financial services, including crypto-to-crypto transactions. In contrast, MTLs are regulated at the state level and are specifically required for businesses handling crypto-to-fiat exchanges. This means that while MSB registration ensures compliance with nationwide AML standards, obtaining an MTL necessitates meeting varied state-specific requirements, adding another layer of regulatory complexity for multi-state operations.

7 Steps for Crypto Licensing in the USA

Obtaining a cryptocurrency license in the USA involves a detailed and structured process. By following these seven steps, you can ensure that your business complies with all necessary federal and state regulations.

1. Determine the Type of License Needed: Identify whether your business requires a Money Service Business registration or a Money Transmitter License, or both. This depends on the nature of your transactions, such as whether you handle crypto-to-fiat or crypto-to-crypto exchanges. Understanding the specific requirements for each license will guide you through the necessary compliance steps.

2. Register with FinCEN: If your business falls under the MSB category, you must register with the Financial Crimes Enforcement Network. This involves submitting the “FinCEN Registration of Money Services Business” form through their BSA E-Filing System. There is no fee for this registration, but it must be renewed every two years.

3. Prepare Required Documentation: Gather all necessary documentation, which includes your business plan, financial statements, identification documents of founders and beneficiaries, and AML compliance policies. You will also need insurance policies and proof of financial capability, which may vary by state. Proper documentation is critical for both federal and state-level applications.

4. Develop and Implement an AML Program: Create a robust Anti-Money Laundering program that includes policies and procedures to prevent money laundering and terrorist financing. This program should cover customer due diligence, transaction monitoring, and employee training. An effective AML program is essential for obtaining and maintaining your license.

5. Apply for State-Specific Money Transmitter Licenses: Submit applications for Money Transmitter Licenses in each state where you plan to operate. Each state has its own application process, which may include background checks, bonding requirements, and compliance with state-specific regulations. The application fees and processing times vary by state, so plan accordingly.

6. Pay Fees and Charges: Determine the fees associated with each license application, which can range from a few hundred to several thousand dollars depending on the state. Ensure that all fees are paid on time to avoid delays in the licensing process. Some states may require surety bonds or other financial securities as part of their application.

7. Undergo Regulatory Inspection and Approval: Prepare for an inspection by regulatory authorities, who will assess your business’s compliance with all relevant laws and regulations. This includes reviewing your financial condition, AML program, and overall operational integrity. Address any issues or deficiencies identified during the inspection promptly to facilitate approval of your license.

Traversing these steps carefully will help ensure that your cryptocurrency business meets all regulatory requirements and operates legally within the USA. Please note that these are the key major steps, and there is more to it. Ongoing compliance, regular audits, and staying updated with changing regulations are also important aspects of maintaining your license.

How Much Does It Cost to Acquire Crypto Licensing in the United States?

The cost of acquiring crypto licensing in the United States varies significantly depending on the specific requirements of each state and the complexity of your business operations. Generally, application fees for state-level Money Transmitter Licenses can range from a few hundred to several thousand dollars. Note that businesses may incur costs for legal consultations, preparing documentation, and implementing necessary compliance programs such as Anti-Money Laundering (AML) systems. Some states also require surety bonds, which can further increase expenses. Overall, the total cost can range from $10,000 to $100,000 or more, depending on the number of states you need licenses in and the specific requirements of each jurisdiction.

Consequences of Violating FinCEN Rules

Failing to comply with FinCEN regulations can result in severe consequences for cryptocurrency businesses. Administrative fines can range from $50,000 for minor infractions to $1,000,000 for serious violations related to money laundering. Repeated or significant non-compliance can lead to license revocation, effectively halting business operations. Moreover, violations can cause substantial reputational damage, leading to a loss of clients, investors, and public trust. In extreme cases, FinCEN may refer the matter to law enforcement, potentially resulting in criminal prosecution.

Conclusion

It may seem daunting at first to navigate the complexities of obtaining a cryptocurrency license in the USA, but with a clear understanding of the necessary steps and requirements, the process becomes more manageable. Ensuring compliance with both federal and state regulations not only legitimizes your business but also builds trust and credibility with your clients.

With over a decade of experience, Shift Markets offers a streamlined solution for acquiring cryptocurrency licenses in the United States, including MSB & MTL and FinCEN registration. Trust our expertise to navigate the complex regulatory landscape of the United States and ensure your business operates legally and efficiently. Reach out today to learn more.

This article is for informational purposes only and does not constitute legal advice. Shift Markets recommends consulting with a qualified attorney for specific guidance related to your cryptocurrency business. Shift Markets is not responsible for any actions taken based on the information provided in this article.