United States: New Regulatory Developments In Blockchain Finance

Last Updated: March 1 2017
Article by Saad Gul and Michael E. Slipsky


Blockchain technology combines several features of existing financial infrastructure. It is partly a mass repository of historical transactions, partly a decentralized clearinghouse, and partly a digital currency. It is also potentially the most significant economic development since the advent of the Internet. Much like Sears transformed retail by offering mail order products to remote areas, blockchain technology has the potential to expand financial services to people who live and work outside of major metropolitan areas. PayPal and Amazon have already entered areas that were previously the exclusive domain of traditional banks. Blockchain is the logical next step.

For instance, payments and cash management is currently a cumbersome process involving the reconciliation of transactions across multiple systems: the retailer's point-of-sale, the customer's bank, the retailer's credit department, and the card processing network. Each participant in that chain must adjust its system to reflect the transaction. Each adjustment entails a potential bottleneck. Blockchain, however, offers the promise of near real-time updates to all participants. Reducing the current settlement time of 3 days to a few minutes could potentially result in significant savings since billions of dollars are processed every day.

Another area of promise is money transfers. Blockchain can significantly reduce the time and cost of settlement when transferring money. These reductions could boost the profitability of money-transfer enterprises, which have traditionally been a high-volume, low-margin business. Moreover, current blockchain models envision incorporating Know-Your-Customer and Anti-Money-Laundering constraints into the technology, thereby removing potential regulatory risks. The incorporation of regulatory compliance into blockchain technology would permit retailers such as convenience stores or gas stations to focus on their core retail operations while still being able to derive revenue from the complex and highly regulated money transmission industry.

Moreover, if the Trump Administration follows through on its public commitments and initiates stringent scrutiny of money transmission through traditional service providers such as Western Union, analysts expect immigrants to switch to blockchain as an alternative means of transmission. In particular, a freeze on remittances to Mexico would trigger an immediate bitcoin boom.

Regulatory Responses

Regulators have yet to articulate a coherent guiding principle in blockchain management. On December 5, 2016, the Federal Reserve issued a paper on blockchain issues. Federal Reserve governor Lael Brainard had previously stated that the Fed was "playing close attention" to blockchain developments. Chair Janet Yellen had also told Congress that blockchain technology had "significant implications for the payments system". But beyond bland reassurances that the Fed strives to foster innovation, its recent paper gave no indication as to how federal regulators would regulate the industry.

However, the paper did identify legal issues pertaining to specific parts of financial blockchains. Regulations governing settlements, central counterparties, and securities depositories will have to be revised to meet the new reality if existing intermediaries are supplanted by a distributed blockchain system.

The Federal Reserve's caution can be contrasted with the Office of the Comptroller of Currency. In September 2016, Comptroller Thomas Curry indicated that OCC would charter blockchain companies that offer banking and financial services. The move was considered a victory by the blockchain industry, which had complained of the difficulty of operating under a patchwork of widely diverging regulations in different states. Critics, especially state regulators, decried the decision, arguing that it would enable blockchain companies to have the advantages of a bank without the corresponding obligations.

The OCC's rejoinder noted that blockchain companies already operate in the financial sphere; the chartering process would entail vetting and consumer protection, and it would ensure that blockchain companies did not enter banking through alternative channels where risks could not be evaluated and managed. Moreover, blockchain companies would operate under a limited-purpose bank charter that would entail compliance with appropriate regulatory requirements, including the Bank Secrecy Act and other anti-money-laundering provisions. The public would also be protected by the relevant consumer protection laws.

The OCC's approach does not address one of the key issues identified by the Fed: additional risk, including the possibility of systemic failure. Indeed, one of the most promising blockchain developments of 2016 is also a significant regulatory problem. Blockchain technology has developed to the point of nodal connectivity – i.e., different blockchain systems can communicate with each other, vastly increasing their potential. But that same development means that an issue on one immutable blockchain network could spread to others. If federal regulators were to permit blockchain to serve as a clearing house, they would have to devise regulations to address concerns surrounding the potential losses of personal information, unauthorized access and securities laws. Their inclination to tread lightly in this area is thus understandable.

The Fed's reluctance to intervene may also stem from the experiences of their state counterparts. 2015 saw high-profile state-level efforts to regulate cryptocurrencies flounder. For instance, New York rolled out "BitLicense" amidst considerable fanfare in an effort to clarify reporting obligations for blockchain businesses in the state. Advocates had hoped that the legislation would establish clear benchmarks for the industry. Skeptics complained that the licensing scheme contravened the anonymous distributed structure at the heart of blockchain technology.

The skeptics had a point. Two years after the high-profile rollout, New York has issued only three BitLicenses, while twenty other firms continue to operate under various safe harbor provisions. New York's experience may have discouraged others. California, which had appeared poised to enact a New York-like scheme, has since withdrawn its proposal and no replacement has yet been floated.

Connecticut opted to leave regulation to its Department of Banking. While the state recognizes blockchain currencies as equivalent to money, it has also imposed additional requirements such as requiring surety bonds sufficient to "address the current and prospective volatility of the market in such currency or currencies".

Georgia has been even more opaque. It enacted HB11, which gave state regulators the power to regulate blockchain businesses. But the legislation did not specify what constituted a virtual, digital, or blockchain currency. Blockchain businesses in Georgia are thus operating under an ad hoc regime without defined regulatory parameters.

North Carolina and New Hampshire have taken a different approach. Both states enacted legislation requiring bitcoin dealers to meet the same requirements as state-licensed money transmitters. This entailed obtaining a transmitter license and posting a bond ($150,000 in North Carolina and $100,000 in New Hampshire). But both states left room for innovation by excluding individuals utilizing blockchain technology in private transactions from the money transmitter rules.

Finally, two other states attempted to enact blockchain-related legislation but failed to so. Pennsylvania's HB 850, which would have defined money to encompass blockchain currency, had to be tabled due to budget disputes. And Wyoming's efforts to lift restrictions that require extensive reserves, effectively keeping blockchain businesses out of the state, failed to pass.


There is a near-universal consensus that blockchain is poised to expand significantly in the financial sector. This expansion will inevitably entail corresponding regulations, and regulators are carefully monitoring developments in blockchain innovation. For instance, both the Fed and the Securities and Exchange Commission have task forces investigating the implications of the technology. Existing regulatory treatment is inconsistent, to say the least.

The Internal Revenue Service has determined that blockchain currencies constitute property, not currency, for tax purposes. The Commodity Futures Trading Commission has determined that blockchain currencies are a commodity. The Securities and Exchange Commission has not yet determined whether they are a security. And different courts have reached diametrically opposite conclusions as to whether or not blockchain currencies are, in fact, currency. Even President Trump's approach remains unclear. His advisors include both blockchain advocates and skeptics, and he has not yet signaled his personal policy preference.

With blockchain values continuing to climb, it is a safe bet that notwithstanding their initial teething pains, states will continue to explore their regulatory options. The dual desire to protect their own revenue (at least until they are able to effectively tax blockchain transactions) and to stave off a high-profile consumer disaster will drive continued regulatory efforts. The precise contours of the new regulations have yet to be defined; however, efforts to date indicate that states will experiment with varying regulatory schemes, most of which will coalesce around a handful of core principles.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Saad Gul
Michael E. Slipsky
In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions