Major cryptocurrency exchanges Bitfinex and Poloniex have announced in March and late July 2017, respectively, that they would stop their operations in the state of Washington following the enactment of Senate Bill 5031 or the Uniform Money Services Act.
Some cryptocurrency exchanges, meanwhile, want to do business in the state despite the new regulation.
Among them is Gemini, which already secured an approval and a license to start operating in the state, allowing its Washington-based customers to buy and sell virtual currencies at the exchange.
Exchanges required to secure license to operate
The law aims to regulate money transmitters and currency exchanges in the state, including virtual currency operators.
According to the two exchanges, the new rules do not seem to support their objectives and their capability to serve their customers effectively.
In March, Bitfinex has already threw in the towel citing the incumbent license requirements and clearly stipulated in their ToS, particularly stating:
“Important: Financing is not allowed where prohibited by applicable law. US Persons may not be Financing Recipients on the Site. Furthermore, New York and Washington state residents are prohibited from depositing to, withdrawing from or trading on the Site.”
Part of the statement made by Poloniex on its website reads:
“After careful consideration of the Washington State Department of Financial Institutions’ interpretation of its financial services regulations, Poloniex will suspend Washington account creation until further notice. For existing Washington customers, you will receive an email with instructions on how to wind down your account.”
Under the Act, any entity or individual who wants to operate a cryptocurrency exchange in the state should apply for a license and should contract with a third party auditor to monitor and inspect their system to ensure its transparency and integrity.
Exchanges should also establish a bond whose amount is calculated based on the amount of currency that was transacted by an exchange in the previous year.
Part of the new law states:
“For business models that store virtual currency on behalf of others, the applicant must provide a third-party security audit of all electronic information and data systems acceptable to the director.”