Banking Trade Group Proposes Database for US Bitcoin Companies

The American Bankers Association (ABA) has called for the creation of a national database of digital currency companies and exemptions for banks from future licensing requirements.

The proposals were outlined in a 16th February letter sent to the Conference of State Bank Supervisors (CSBS), an organization made up of state banking regulators that released a draft framework for digital currency licenses in December.

The licensure framework approach is being adopted by New York and is under discussion by other US states like New Jersey. The CSBS has also held hearings on the subject of bitcoin regulation in the past.

The ABA

counts American banking giants like JPMorgan, Wells Fargo and Bank of America Merrill Lynch among its membership, as well a large network of small and medium-sized banks in the US. The ABA was among a number of organizations that issued comments during a 60-day period that followed the release of the draft proposal.

The group called on the CSBS to produce a licensure framework that would homogenize oversight of digital currency businesses between state regulatory agencies. Its letter was in response to a series of questions posted by the CSBS in their proposal.

While the letter points to bitcoin and other digital currencies as innovative forces in the area of payments, the ABA argued that the CSBS should adopt a licensure-based framework because of the systemic risks it sees with bitcoin. The organization acknowledged that these risks have yet to have an impact on the broader financial system, noting:

In addition to arguing for a data-sharing system and exemptions for banks from new rules, the ABA called for companies that hold digital currencies for customers to be subject to the Electronic Funds Transfer Act (EFTA), adhere to know your customer (KYC) and anti-money laundering (AML) rules, and pay fully into state-funded insurance schemes or trust funds prior to access.

The concept of sharing information between state banking regulators about companies handling bitcoin was included in the draft proposal from the CSBS.

“A critical piece of such a [licensure] system is the ability of states to share licensing and enforcement data in real time,” the organization proposed at the time.

The ABA suggested modeling a national database of digital currency firms on the Nationwide Mortgage Licensing System, a registry of mortgage brokers and originators launched in 2008 that was later expanded to cover a broader range of financial services.

“Such a registry would allow regulators to verify a business’s status in other states and allow consumers to ensure that a business is registered before doing business with it," the ABA wrote.

The CSBS proposal suggested that digital currency businesses fall under federal statutes including the EFTA. The ABA cited Regulation E as a means for regulators to assign liability in instance of fraud, but outlined how applying the statute could prove complex given the nature of bitcoin transactions.

"As bitcoin transactions are irreversible once posted to the blockchain, consumers have no recourse to reclaim their funds," the organization wrote. "If Regulation E applied, wallet providers would be responsible for making customers whole following fraudulent transactions just as banks are."

The ABA goes on to say only in instances where a wallet provider has knowledge of both transaction parties would fraud claims be relatively simple to settle, noting:

"When your pocket is picked Gucci doesn’t reimburse you for your loss," the ABA added.

In its letter, the ABA called for a "level playing field" among companies offering service in the payments space, suggesting that competition in the marketplace would be stifled otherwise.

The ABA wrote:

Arguing that banks are already regulated under what it characterized as significant oversight, the ABA requested that the CSBS consider proposing exemptions for banking institutions under future digital currency licensure regimes.

"Subjecting banks to duplicative regulations would add no additional protections to consumers, and would divert bank resources from serving their communities," the letter stated.

The full letter from the American Bankers Association can be found below:

ABA Framework Comment

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