DATA CSBS COMMENTS 1
	
  
February 20, 2015
Attn: Emerging Payments Task Force
Conference of State Bank Supervisors...
 
	
  
DATA CSBS COMMENTS 2
	
  
currency2
firms. We applaud the collaborative approach taken by the CSBS and
hope to cont...
 
	
  
DATA CSBS COMMENTS 3
	
  
otherwise high barrier licensing regime, including a safe harbor provision that: (1)
take...
 
	
  
DATA CSBS COMMENTS 4
	
  
should be mandated to utilize NMLS and certain forms and procedures should
be standardize...
 
	
  
DATA CSBS COMMENTS 5
	
  
DATA believes that any framework should avoid creating a disparity among
digital currency...
 
	
  
DATA CSBS COMMENTS 6
	
  
materials to be submitted in hard copy which negates the benefits of a
streamlined online...
 
	
  
DATA CSBS COMMENTS 7
	
  
The CSBS and state regulators can utilize groups like DATA and industry trade
association...
 
	
  
DATA CSBS COMMENTS 8
	
  
present unique challenges to oversight regimes historically based on centralized
systems ...
 
	
  
DATA CSBS COMMENTS 9
	
  
Digital currency firms have a fiduciary duty to protect client funds. Regulators
must the...
 
	
  
DATA CSBS COMMENTS 10
	
  
DATA believe that the determining the appropriate level customer identification
informat...
 
	
  
DATA CSBS COMMENTS 11
	
  
a. For licensed virtual currency companies, what types of information and
data should be...
 
	
  
DATA CSBS COMMENTS 12
	
  
of digital currency firms. Supervisors can also use internal and external data
points to...
 
	
  
DATA CSBS COMMENTS 13
	
  
16. Banking Services for Virtual Currency Companies – Banking
arrangement information is...
 
	
  
DATA CSBS COMMENTS 14
	
  
discussed, DATA believes that facilitators should be exempt from the Proposed
Model Fram...
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Digital Asset Transfer Authority Comments to Conference of State Bank Supervisors

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DATA comments to Conference of State Bank Supervisors on pending digital currency and digital asset rules.

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Digital Asset Transfer Authority Comments to Conference of State Bank Supervisors

  1. 1.     DATA CSBS COMMENTS 1   February 20, 2015 Attn: Emerging Payments Task Force Conference of State Bank Supervisors 1129 20th Street NW, 9th Floor Washington, D.C. 20036 Re: Proposed Regulatory Framework: Virtual Currency Dear Members of the Task Force: This letter is submitted on behalf of the Digital Asset Transfer Authority (“DATA”) in response to the proposed Draft Model Regulatory Framework and Policy Statement on Virtual Currency Regulation issued by the Conference of State Bank Supervisors (“CSBS”) on December 16, 2014 (collectively, the “Proposed Model Framework”). Background DATA is a global non-profit trade association established in July 2013 focused on digital assets, including distributed ledger technologies such as Bitcoin.1 DATA was founded to (1) act as a conduit and feedback mechanism between the digital asset business community and policymakers and subject matter experts; (2) to inspire confidence in such products by spearheading the development of best practices across AML, data security, consumer protection and privacy; and (3) to evolve in compliance with applicable laws and regulation governing digital currencies including decentralized ledger technologies such as the Bitcoin protocol (referred to collectively herein as “digital assets”). Our members represent a broad range of digital asset businesses including currencies, exchanges, administrators, and payment platforms, as well as service providers such as established law firms that are actively engaged in the digital asset space. General Comments We appreciate the opportunity to provide comments to the Proposed Model Framework. We are encouraged by the efforts of the CSBS and its Emerging Payments Task Force to establish a model regulatory regime for digital                                                                                                                 1 More information available at www.datauthority.org.
  2. 2.     DATA CSBS COMMENTS 2   currency2 firms. We applaud the collaborative approach taken by the CSBS and hope to continue to have the ability to offer industry input into the process. We believe that the proposal offers a positive starting point in developing a regulatory framework that can protect consumers while also allowing this important technology to evolve and thrive. Several DATA member companies are registered as a money service business at the federal level and are seeking state licenses. These companies face uncertainty as the current regulatory framework for digital currency firms has not been established. Several states have attempted to place digital currency firms under existing money transmitter laws while the New York Department of Financial Services (“NYDFS”) has proposed a separate regulatory regime for digital currency firms. A few states like Texas and Kansas have issued guidance on how digital currency applies to current laws. More guidance and uniformity in a state regulatory framework is needed to allow these companies to operate efficiently across state lines. Listed below are some general comments on the Proposed Model Framework followed by responses to the specific questions posed by the CSBS. 1. The definition of virtual currency is too broad The Proposed Model Framework appropriately focuses on activities based regulations. The framework, however, should offer a narrower interpretation of regulated activities. Digital currency firms have diverse business models, including exchanges, wallets services, ATMs, security services, software services, and payment processors. It is appropriate to regulate those firms that exchange digital currency or hold the currency as a custodian due to the heightened risks to consumers of those activities. However, we believe that payment processors or “facilitators” of digital currency transactions should be exempt from the rules. 2. Smaller firms should be treated differently under the framework The Proposed Model Framework should exempt (or limit oversight over) smaller start-ups to allow them the ability to enter the market without the licensing costs and compliance burdens. These smaller firms pose less risk and should be allowed to operate without the liabilities and costs associated with full licensure. DATA believes there is a need to create a tiered, risk-based onramp to an                                                                                                                 2 For purposes of this letter, we use “digital currency” and “virtual currency” as interchangeable terms.
  3. 3.     DATA CSBS COMMENTS 3   otherwise high barrier licensing regime, including a safe harbor provision that: (1) takes into account the rapidly evolving technologies and business models; and (2) ensures that regulatory requirements correspond to actual risk to the consumer and are balanced against the net public benefit of the technology. At a minimum, this safe harbor should allow small startups to operate with minimum thresholds and clear guidance on correspondingly low safety and soundness requirements, with at least six months to apply for a license once thresholds are crossed. 3. Regulations should be principles-based Regulation of digital currency firms should focus on high-risk areas and should not establish rules that are overly burdensome. In striking the correct balance, regulators should consider principles-based guidelines rather than detailed prescriptive rules. Prescriptive rules and a check the box approach may be ineffective, especially in a fast moving industry like digital currency. Prescriptive rules could have a chilling effect on technological innovation and the ability of consumers to realize the benefits of digital currency. Regulators can achieve the same objectives by offering principles that need to be addressed and allowing industry to create programs to comply with these risk areas. Groups like DATA, and other industry representatives, have been taking a proactive approach toward establishing best practices to satisfy these types of criteria. In a principles-based regime, state supervisors still maintain examination authority to hold firms accountable and determine whether further prescriptive rules are needed. 4. The Proposed Model Framework needs to be adopted across all states in a consistent manner DATA requests that the CSBS create a framework that will be adopted by all states and eliminates the current uncertainty in the marketplace. We request that any model rule eliminate the need for multiple licenses for digital currency firms that may also be conducting more traditional money transfer services. While we encourage the CSBS to make the rules flexible, we also caution that providing state supervisors excessive discretion, it could lead to disparities on the application of the rules. Also, we encourage the CSBS to ensure a level playing field by establishing similar guidelines for both digital currency firms and other money transmitters. DATA members would also like to see a more streamlined process in terms of applications and ongoing oversight. All states
  4. 4.     DATA CSBS COMMENTS 4   should be mandated to utilize NMLS and certain forms and procedures should be standardized to the extent possible. 5. The recordkeeping rules are unnecessary We believe the AML rules set by FinCEN in the March 2013 guidance is an appropriate level of regulation for digital currency firms. The AML requirements in the Proposed Model Framework propose recordkeeping rules that require gathering personal information for all parties related to digital currency transactions. This requirement is not aligned with federal rules making it impractical when it comes to collecting counterparty information. We cannot identify a public policy aim that justifies the collection of PII for every de minimus transaction for it presents little net gain to reducing AML risks, additional burden to the licensee, and increased privacy risk to the consumer. At a minimum, CSBS should eliminate the requirement for PII collection of non-customer of the licensee and indicate a minimum transaction threshold for identity verification (e.g., conduct proper risk/benefit calculation). As the recent massive data breaches at Target, Home Depot, Kmart and JP Morgan show,3 the continued practice of unsecured personal data collection to process transactions—a practice that originated in a brick-and-mortar world—presents serious dangers to consumer privacy and control of personal identities even for large, global companies. These dangers will be exacerbated where proposed rules seek to require smaller, less sophisticated businesses that accept digital assets as payment to safeguard personal data in their corporate records. We further request that the CSBS clarify that any records for counterparties be kept to the extent practical. Responses to Questions for Public Comment 1. Policy Implementation – Entities engaged in virtual currency activities might not be engaged in traditional money transmitter activities involving only fiat, government-backed currencies. Similarly, traditional money transmitters might not be engaged in virtual currency activities. a. Within the umbrella of state money transmitter regimes, how can state regulators appropriately tailor licensing and supervision to each set of licensees?                                                                                                                 3 Jake Swearingen, “Why the JP Morgan Data Breach Is Like No Other”, The Atlantic, October 3, 2014, available at http://www.theatlantic.com/business/archive/2014/10/why-the-jp-morgan-data- breach-is-like- no-other/381098/.
  5. 5.     DATA CSBS COMMENTS 5   DATA believes that any framework should avoid creating a disparity among digital currency firms and traditional money transmitters. We believe that licensing, examination and oversight questions/requirements should be expanded to capture all types of activities for money transmitters and/or digital currency businesses. Depending on the business model, some of these requirements may or may not be applicable to digital currency institutions. Examiners should be trained on specific risk areas and examination manuals can be expanded to request the required information to assess risks. b. In order to properly tailor licensing and regulatory regimes to virtual currency activities, should states consider a virtual currency-specific “amendment” or “endorsement” to a traditional money transmitter license? DATA believe that states should attempt to govern digital currency firms through current money transmitter laws and treat these entities as money transmitters offering a specific type of service. This approach may be challenging due to the language in current statutes and therefore could require legislative changes. If CSBS chooses to create an entirely separate framework for digital currency firms, regulators should avoid requiring multiple licenses for digital currency businesses. 2. Licensing Process a. Though states largely have the same licensing requirements, there is not a common implementation process. Please comment on the functionality of the NMLS or other licensing systems. NMLS has streamlined the application process, but there are several efficiencies and enhancements that can be made to this process. Uniformity in applications would improve the process and reduce costs. b. Would a common application and guide to licensure enhance the efficiency of the licensing system? A common application seems appropriate as most states have similar requirements. This application should be comprehensive enough to capture any state specific requirements. One other issue is that nearly all states that accept money transmitter license applications through NMLS require additional
  6. 6.     DATA CSBS COMMENTS 6   materials to be submitted in hard copy which negates the benefits of a streamlined online process. c. Obtaining required criminal background checks has been flagged as an administrative challenge in the licensing process. What procedures can states uniformly adopt to facilitate obtaining criminal background checks as part of the licensing process? The differences in the fingerprinting procedures for various states increases costs and places burdens on firms. If all states were to accept FBI standard fingerprint cards completed by a police department or an approved third party vendor, individuals could complete all necessary fingerprinting at once. d. Credentialing business entity key personnel can be a hands-on process, but has proved indispensable for financial services licensing. Are there alternative means of credentialing that may facilitate the process? In addition to the fingerprinting process and the credit checks run through NMLS, many states require officers and directors of applicants to complete extensive forms covering information such as employment and residential history even though such information is provided through the NMLS MU2 filings. The need for these forms could be eliminated by simply expanding the scope of the MU2 filing on NMLS to cover all relevant information. 3. Training and Education – Educating regulators about virtual currency business activities and business models is an important part of building a responsive and robust regulatory structure. a. What education may be necessary for state regulators to aid in the licensing process? Due to the complexity of digital currency, regulators should ensure that training takes place to understand the technology and regulators have staff and resources to properly oversee digital currency firms. Training should be provided on blockchain technology and digital currency transactions. b. What resources are available to explain technology and business models across the virtual currency industry?
  7. 7.     DATA CSBS COMMENTS 7   The CSBS and state regulators can utilize groups like DATA and industry trade associations to get a broad perspective on the technology and related business models. Also, groups like the Bitcoin Foundation would helpful based on their mission to oversee the core development of Bitcoin. 4. Technological Innovations – What changes and innovations have been seen and/or can be anticipated in the technological aspects of virtual currencies and the resulting marketplace? New products and services are emerging in an attempt to disrupt current payment systems. Many companies are trying to make digital currency easier to use by consumers and merchants and to create products to directly address the risks associated with digital currency. Blockchain technologies may shift the policy goalposts and traditional mechanisms that, when applied to these technologies, may produce unintended negative consequences. Blockchain technologies enable companies, regulators and auditors to conduct real-time risk analysis of transactions with immutable data collection and auditability, which was previously technologically impossible. Furthermore, emerging innovations and practices in the ecosystem such as multisignature (segregation in controls, granularity in corporate and treasury duties, impossibility of internal fraud, real-time transparency and auditability), the advent of proof-of-reserves methods (users can verify their balances online at platforms in real-time), and “continuous real-time accounting” may aid CSBS in their policy goals. Innovations in areas such as Big Data and the Internet of Things are facilitated by blockchain technologies, which utilize smart contracts enabling automated interactions without human intervention, reducing transaction costs, and offer secure, efficient communication and payment networks.4 These emerging innovations also directly bear on CSBS policy goals and CSBS should work with organizations like DATA to better understand the capabilities of these technologies. Working with the industry to understand these technologies may change CSBS evaluation of the policy tradeoffs and the mechanisms used to achieve CSBS policy goals, including facilitating safety and soundness of licensees, and enabling more consumer choice and control. It is essential that policymakers understand that Internet and p2p technologies                                                                                                                 4 See IBM ADEPT White Paper using blockchain to show proof-of-concept for machine-to- machine interaction in the Internet of Things, available at http://www.computerweekly.com/news/2240238627/IBM-uses-Bitcoin-technology-to-build- internet-of-things-platform.
  8. 8.     DATA CSBS COMMENTS 8   present unique challenges to oversight regimes historically based on centralized systems and gatekeepers, and that emerging technologies exacerbate the governance gap. Therefore, multi-stakeholder collaboration is necessary in building the correct frameworks, and there are many organizations and individuals who are willing to assist CSBS in understanding the risks and benefits of these emerging innovations. Regulations should be flexible enough to deal with these changes and also evolve to address emerging risks. 5. Denomination of Capital, Permissible Investments, and Bond Coverage – Capital, permissible investments, and surety bond requirements exist to create financial security in the event of failed transactions or a failed business. For financial services companies dealing in virtual currencies, should these safety funds be denominated in the applicable virtual currency or in dollars? In addition to holding reserves, digital currency firms maintain minimum capital, surety bonds, and in some cases private insurance against theft of assets, to further protect customer funds. Like any other money transmitter, state supervisors have the authority to require firms maintain additional levels of protection. In this context, DATA believes it is appropriate for digital currency to be held as permissible investment. 6. Distressed or Failed Companies – Certain requirements in the Draft Framework are designed to provide regulators with tools for dealing with distressed or failed companies. Please comment on the practical issues and challenges facing regulators in the case of a distressed or failed company. What other tools should regulators have for resolving a failed virtual currency company, minimizing consumer harm and market impact? Digital currency firms have a duty to protect client funds. As a result, firms have full reserves for these assets and are subject to capital requirements and other rules around risk controls. State regulators can protect against failures by ensuring that digital currency companies operate in a safe and sound manner and have adequate safeguards over client funds. Regulators can guarantee safeguards are in place through licensing, reporting and examinations. State regulators should also consider resolution procedures that ensure customer funds receive priority in the event a failure. 7. Consumer Protections – What consumer remedies should policy makers consider for virtual currency financial activities and transactions?
  9. 9.     DATA CSBS COMMENTS 9   Digital currency firms have a fiduciary duty to protect client funds. Regulators must therefore ensure these funds are protected at the front end and remedies are established in the event of a loss. In terms of controls, consumers must be given adequate disclosures to understand transactions, including the risks and liability. Digital currency firms should have security protocols in place to ensure funds are not lost. If there is a loss, funds should be protected or reserved for in a manner in which the customer can recoup funds with minimal exposure. There should be resolution procedures for digital currency companies to be able to handle customer complaints. 8. State Insurance or Trust Funds – Some states have laws that create a trust or insurance fund for the benefit of instrument holders (i.e., holders of checks, money orders, drafts, etc.) in the event that a licensed money transmitter defaults on its obligation or is otherwise unable to make payment on the instrument. Is it appropriate to allow holders of instruments denominated in virtual currency access to such insurance or trust funds? Yes. We believe that the holders of digital currency assets are holding value similar to holders of other negotiable instruments and therefore should be provided these additional protections. 9. BSA/AML – Fraud and illicit activities monitoring are increasingly technology based and proprietary, especially for virtually currency companies. Are state and federal exam procedures current with regards to new methods of detecting BSA/AML activity? We believe that current state and federal exam procedures provide a starting point for a general framework to oversee digital currency firms. Existing guidelines for money transmitters, along with the March 2013 FinCEN guidance, provide details on who should be regulated and how. As the industry develops, exam procedures need to be updated to reflect specific risks and controls being used by digital currency businesses. Companies in this area have developed new ways to detect fraud and illicit activity. Regulators need to have the expertise and be made aware of these methods. 10. Customer Identification – The Draft Framework includes maintaining records on the identification of virtual currency owners. Credentialing consumers for identification purposes can be accomplished to varying degrees, from basic account information to verified personal identification. What is the appropriate level of identification?
  10. 10.     DATA CSBS COMMENTS 10   DATA believe that the determining the appropriate level customer identification information required should be based on risks presented. At a minimum, digital currency firms should have KYC procedures for non-de minimus transactions to ensure that they understand the identity and risks for each customer. CSBS should consider a de minimus threshold that exempts certain de minimus transactions from data collection (which presents clear privacy risks) but would require more rigorous KYC procedures as the risk increases with transaction amount and volume. Firms should screen customers against sanction party lists and should conduct enhanced due diligence in scenarios where higher risks are presented. Ultimately, firms need to gather enough data to demonstrate they understand the risks presented. 11. Regulatory Flexibility – The Draft Framework stresses regulatory flexibility to accommodate different activity levels and business models and to avoid inhibiting innovation. a. Given the rapidly evolving nature of virtual currencies, what should be the nature of any necessary flexibility? Regulators should consider a principles-based approach instead of prescriptive rules, which may quickly become outdated given the fast-changing technology. There should be flexibility within the regulations for digital currency firms to be able to comply with the spirit, as well as the letter, of the law. Regulators should grant a level of flexibility to supervisors, but too much discretion could lead to excessive differences between state regulators. CSBS should implement a transparent appeals process to ensure that discretion is not improperly exercised because of an individual regulator’s lack of education about the business model or technology. b. How can laws and regulations be written to strike a balance between setting clear rules of the road and providing regulatory flexibility? Regulators can achieve their objectives through establishing clear principles that establish areas of risk that need to be addressed. Implementing safe harbor provisions will also provide regulatory certainty and flexibility for these nascent technologies. As mentioned, regulators can hold firms accountable and adjust criteria based on ongoing examinations and reviews. 12. Reporting Requirements – Most states require money transmitter licensees to submit periodic reports of business activities.
  11. 11.     DATA CSBS COMMENTS 11   a. For licensed virtual currency companies, what types of information and data should be included in periodic reports? Periodic reporting for digital currency companies should mirror reporting by other money transmitters. This information may include financial data, risk profile metrics and other major business changes. b. What technology solutions exist to mitigate regulatory reporting requirements? Regulators can leverage the blockchain to audit and review digital currency firms and related transactions. In addition, regulators can place some level of reliance on independent third party assessments. The industry is working on ways to further leverage the blockchain and the core technology associated with Bitcoin and other cyptocurrency to provide further transparency. 13. Technological Solutions to Improve Supervision – State exams and reporting requirements reflect an institution at a point in time. Conversely, operational standards and internal compliance audits increasingly offer the opportunity for real time data collection, interacting with transmission data to ensure adequate funding, anti-money laundering compliance, fraud protection, and consumer protection. What technology solutions can regulators and licensees deploy to close information gaps in a manner that makes the supervisory process more efficient and “real time?” Blockchain technologies enable companies, regulators and auditors to conduct real-time risk analysis of transactions with immutable data collection and auditability, which was previously technologically impossible. Furthermore, emerging innovations and practices in the ecosystem such as multisignature (segregation in controls, granularity in corporate and treasury duties, impossibility of internal fraud, real-time transparency and auditability), the advent of proof-of-reserves methods (users can verify their balances online at platforms in real-time), and “continuous real-time accounting” may aid CSBS in their policy goals. CSBS should work with organizations like DATA to better understand the capabilities of these technologies which may change the mechanisms used to achieve policy goals, and facilitate safety and soundness of licensees, and enable more consumer choice and control. While state examinations are point in time, state supervisors may rely on audits and internal compliance reviews to get some insight into the ongoing operations
  12. 12.     DATA CSBS COMMENTS 12   of digital currency firms. Supervisors can also use internal and external data points to have continued insight into firms, including periodic reporting and reviews of customer complaints with the federal and state regulators. 14. Cyber Risk Insurance. Companies have begun looking to insurance to help manage cyber risks, and there are a growing number of companies offering cyber liability insurance. What role should cyber risk insurance have in a licensed virtual currency entity's approach to managing cyber risks? Please discuss the potential costs and benefits for virtual currency companies securing cyber risk insurance. With the fall of Mt. Gox and issues at other digital currency exchanges, regulators and consumers have expressed concern over the safety of digital assets held by firms. Cyber Risk Insurance is another level of protection for customer funds beyond what is in place involving security controls, surety bonds, capital requirements, etc. On one hand, it is encouraging that the industry has been able to create this market opportunity and provide more protection for the consumer. However, on the other, at this early stage, the costs are high for this type of coverage and the carriers are selective on who they will insure, but there are a lot of benefits. Therefore the requirement of cyber risk insurance at present would present a barrier to entry for entrepreneurs and smaller firms. We would expect these coverages to evolve and expand over time. The current coverage protects against the theft of digital assets. 15. Commercial Fund Transfer Liability – Article 4A of the Uniform Commercial Code establishes liability for wire transfers, relying on definitions strictly applicable to banks. Are provisions like those in Article 4A necessary for commercial transfers denominated in virtual currencies? If so, is the Article 4A construct an appropriate model to be adapted in a manner that is not bank-centric? Digital currency has some unique characteristics that should be contemplated in determining some type of Article 4A liability. These transactions are anonymous and are not subject to chargeback. Some elements of Article 4A may be used as a guideline for creating a regime to address these issues, but more analysis is needed to determine what is appropriate for these types of transactions and what type of rules could provide protections without significantly interfering with the beneficial nature of the transactions.
  13. 13.     DATA CSBS COMMENTS 13   16. Banking Services for Virtual Currency Companies – Banking arrangement information is necessary for evaluating the safety and soundness of a licensee. However, virtual currency businesses are not immediately understood by most banks that provide traditional money services accounts. What are the risks facing banks that consider banking virtual currency companies, and how can those risks be mitigated? DATA members continue to have issues finding banking partners willing to assume the risk of working with a digital currency business. Most banks continue to de-risk entire legitimate business models (e.g., money services businesses) due to regulatory and business pressures. In considering whether to offer banking services to a digital currency firm, banks should take a risk-based approach and treat these firms similar to any other MSB. Providing regulatory certainty as to relevant risk metrics and exempt business models would better enable banks to make reliable business decisions for accounts. Banks should evaluate the risk management program as a whole, including staff, policies, procedures and controls. Banks should perform due diligence and look at the highest risk areas, such as financial crimes and security and determine whether controls are adequate in these areas. Banks that do business with digital currency firms should monitor activity on an ongoing basis and seek to get reports from digital currency firms. For their part, digital currency firms seeking banking partners should conduct a comprehensive risk assessment to outline and rank risks and then create appropriate controls. 17. Merchant-Acquirer Activities – Companies processing credit card payments between a buyer’s bank and a seller’s bank (Merchant- Acquirers) have historically been presumably exempt from money services businesses statutes because of their nexus to the highly regulated banking system. A company processing virtual currency payments for merchants who accept virtual currency as payment for goods and/or services may exchange virtual currency to dollars, which can then be transferred to the merchant’s bank account. Is this activity akin to the activities of traditional Merchant-Acquirers, or is it the exchange and subsequent transmission of value that is typically regulated by the states? Most payment processor activity is similar to the activities of traditional Merchant-Acquirers and therefore should be treated separately for regulatory purposes. Furthermore, blockchain technologies reduce former risks and increases transparency associated with similar service providers. As previously
  14. 14.     DATA CSBS COMMENTS 14   discussed, DATA believes that facilitators should be exempt from the Proposed Model Framework. 18. Cost – State regulators are cognizant of the costs associated with licensure and ongoing compliance. What processes can be implemented to reduce these costs, including any shared services or technology-based reporting? DATA members are varied in terms of costs associated with licensure and compliance. We believe that the regulatory framework needs to strike the right balance and weigh benefits against costs and burdens. Digital asset firms are leveraging technology and third party resources to comply with laws. We believe this is appropriate as long as proper diligence is performed and the licensed entity maintains control and responsibility over systems. 19. Escheatment – How should virtual currency be treated under state escheatment laws? Virtual currency should be treated as any other asset under state escheatment laws and abandoned funds should be treated accordingly. Conclusion DATA is encouraged by the Proposed Model Framework and look forward to working with the CSBS in finalizing this proposal. Regulatory clarity is needed for businesses to deliver this important technology to mainstream consumers. If you have any questions, please feel free to contact me at 202-530-4821 or chris.mitchell@datauthority.org. Sincerely, Christopher Mitchell Executive Director

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