Against a backdrop of near-daily enforcement actions and constant regulatory changes, Montana inched into the fray by publishing a letter calling on money transmitters to make a submission to the Montana Department of Banking of Administration, Banking & Financial Institutions (the Department). The Department posted the letter requiring a submission, but that letter was withdrawn shortly thereafter.
Cryptocurrency exchanges and other crypto companies are most frequently registered and regulated as federal money service businesses (MSBs) and state money transmitters (MTLs), which requires seeking licensure for most state banking departments across the country. This requires an analysis of each state's money transmitter laws, which usually turns on the definition of "money" to determine whether crypto exchanges and related business models need to obtain licensure. These licensing obligations can be found in state statutes, administrative codes, regulations, industry guidance, regulator press releases, regulator websites, Nationwide Multistate Licensing System (NMLS) checklists and client-specific "no action" determinations that licensure is not required. Montana is one of the few states in the country that does not maintain a money transmitter regime.
For years, money transmitters served Montanans by obtaining federal MSB registration. This was explicitly permitted by the Montana website, which stated "MONTANA DOES NOT REGULATE MONEY TRANSMITTERS. At this time, Montana does not regulate money transmitters. There is no licensing requirement in Montana for money transmitters." Montana has long been an afterthought for crypto exchanges and other FinTech companies due to this statement and the lack of a state regulatory regime.
However, in this time of widespread increased regulatory scrutiny on crypto, on March 10, 2023, Montana issued a letter stating the following: "Money transmitters must email detailed business plans exactly describing their proposed activities in Montana and flow of funds structure at every point in the transaction (including who holds the funds and how) to the Division of Banking and Financial Institutions..." Montana went on to specifically describe what must be included in the business plan, which includes "all products and services," "the domestic and foreign jurisdictions in which the applicant is engaging or has engaged in the business (including dates), the "schedule of fees charged" and a "description of any other revenue sources." With respect to the flow of funds, Montana sought information about all transactions, including a description of "each step starting with the first encounter with the consumer," a detailed diagram showing "all flows of funds, including virtual and fiat currency," "the name and address of each entity the funds flow through," the "title of each account," the "ownership or control of the accounts and addresses" and "who or what entity is liable for the funds at all points." These detailed requirements are similar to what crypto exchanges and other money transmitters are required to submit to other state regulators in connection with their respective money transmitter applications. This obligation oddly applied to "money transmitters," even though, under Montana law, there is no such thing as a "money transmitter." We were unable to locate any statutory authority explaining what, if any, authority exists to impose penalties for non-compliance with the stated obligation. Apparently, some market participants were confused. After evaluating this notice, we just learned from Montana that it is no longer requiring such a submission. In fact, the letter, issued on March 10, 2023, is no longer available on the Montana website.
We had thought that Montana may have been seeking this information to determine the volume of crypto trading and other money transmissions in Montana to evaluate the need for local regulations. But Montana quickly withdrew the letter. For crypto exchanges and other money transmitters, Montana remains one of the "Last Best Place[s]" (see William Kittredge, The Last Best Place: A Montana Anthology (1990)), and at least for now, Montana-specific MTLs are not required to serve Montanans.
McDermott's crypto team consists of lawyers who spend 100% of their time serving the crypto industry. That team is one of the few that is Chambers ranked in crypto-asset disputes. We also have a sub-team of dedicated lawyers who focus exclusively on state crypto regulations and licensing that are ready to help you navigate state-by-state regulations.
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