While cryptocurrency may have changed the entire world’s financial landscape, it brought about legal changes that sought to bring cryptocurrency under closer government control. For entrepreneurs willing to get into this world, knowing the critical aspects of cryptocurrency regulations can help them navigate this complex regulatory environment and ensure they remain compliant with the law.
Federal vs state laws
Both federal and state laws regulate cryptocurrency. Federally, the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) regulate digital assets. Locally, in California, the Department of Financial Protection and Innovation (DFPI) is the primary regulatory body.
Key regulations
In California, these are the key regulations you need to consider:
- Money Transmission Act: Businesses transacting in cryptocurrencies need to obtain a money transmitter license.
- Anti-money laundering (AML) and Know Your Customer (KYC) requirements: Both federal and state laws require strict AML and KYC procedures. Businesses engaged in cryptocurrency must follow strict measures to verify their customer’s identities and prevent money laundering.
- Consumer protection laws: What applies to brick-and-mortar businesses also applies to online and digital companies. The same laws protecting consumers from fraud, misrepresentation and unfair business practices remain in force, whether offline or online.
Following these laws and complying with these requirements can help you avoid legal repercussions.
Remaining compliant
Knowing the regulations is only half the battle. Following through and staying compliant is the other half. Performing regular audits, spending on employee training and consulting legal professionals can help you avoid the headaches of a government lawsuit.