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Several states now treat cryptocurrency traders as money transmitters. They are often required to be licensed and to obtain a cryptocurrency money transmitter bonds. As all but three states require traditional money transmitters to obtain a license and permit bond, it’s likely that the number of states requiring licensing and bonding of cryptocurrency traders will increase dramatically in coming years.
Only a small percentage of the surety companies that underwrite money transmitter bonds will issue money transmitter bonds for cryptocurrency traders. This is partly because cryptocurrency is relatively new and not widely understood.
States that require licensing and bonding of cryptocurrency dealers typically regulate only businesses, not individuals, trading in cryptocurrency as money transmitters.
A cryptocurrency bond guarantees that the money transmitter conducts business in a completely lawful and ethical manner. The obligee in the bond arrangement is the state agency that licenses money transmitters and requires money transmitters to be bonded.
A party who suffers a financial loss due to any illegal activities on the part of the cryptocurrency trader can file a claim against the bond. The surety (the company underwriting and issuing the bond) is legally obligated to pay all claims it finds to be legitimate. The bonded transmitter is then legally obligated to reimburse the surety.
The required bond amount varies greatly from one state to the next. For example, in the state of Washington, the required bond amount ranges from $10,000 to $50,000, while in North Carolina it can be anywhere from $150,000 to $250,000. In other states, the bond amount depends on the company’s cryptocurrency transaction volume. Being licensed and bonded in all 50 states could eventually push the required bond amount up to as much as $8 million. The principal will pay only a small percentage of that bond amount as the annual premium.
Because of the inherent risk of trading in cryptocurrency, surety companies that issue bonds to companies dealing in cryptocurrency have more rigorous underwriting standards than for other money transmitters. Applicants will need to provide resumes for key individuals and undergo background checks to ensure that they’re not involved in illegal activities.
The financial ability to reimburse the surety for potentially millions of dollars in claims payments is also a key consideration. The most highly qualified applicants may pay an annual premium of as little as 1% of the bond amount.
Our experts will gladly answer any questions you may have about cryptocurrency bonds. Or, simply complete our convenient online application form to get started.
