Source
r/legaladvice•
Styx_

What regulations should I be aware of if I intend to create a service that converts cryptocurrency to fiat? [Georgia, USA]

Pretty much the title. I have an idea for a SaaS application that would, at it's core, receive cryptocurrency from third-party A, convert it to fiat, and dole out the fiat to third-party B. I know how to do this technically, (plug into the GDAX API and go from there), but would I be breaking the law if I just ran this through my personal bank account? Would I have to incorporate? There are notoriously few organizations that do this, Coinbase being the biggest. I've always heard there are large legal hurdles to doing this, but I am unfamiliar with the specifics.

Let me know if there is any need for further clarification of the idea.

Posted Feb 7, 2018, 1:13 AM UTC

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Cypher_BlueQuality Contributor•

All of the banking, currency, and security trading laws, basically.

A business like that is beyond reddit DIY territory. You're gonna need a lawyer.

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grasshoppa1Quality Contributor•

Probably not securities, just FinCEN/MSB regulations.

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deeyenda•

Depends on what the SEC decides after Clayton's talk on crypto today, and whether Congress decides to regulate crypto assets as securities.

If not, he "only" has to deal with regulations and any control the CFTC decides it wants to exert.

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grasshoppa1Quality Contributor•

I think you're misunderstanding everything Clayton has said.

Cryptocurrencies that are just plain crypto won't ever be considered securities. Tokens and altcoins that represent something else might be.

1
deeyenda•

There are remarkably few cryptocurrencies that are just plain crypto. Most of them are utility or platform tokens in some guise or another, especially ETH.

More to the point, I don't trust the SEC not to engage in thorough regulatory creep if it can at all get away with it.

1
Styx_OP•

Thanks!

0
MajorPhaserQuality Contributor•

Basically the entirety of US and International securities law. This isn't even something I could give you a thorough outline of online.

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grasshoppa1Quality Contributor•

Probably not securities, just FinCEN/MSB regulations (plus any applicable laws outside the US, if that's where the customers are).

6
MajorPhaserQuality Contributor•

True. That was more of a "shock and awe" style answer. "I have a bitcoin business idea" is rapidly becoming "I invented the next big social media platform"

4
Styx_OP•

I'm aware of the similarity :)

But it can't hurt to ask, and better to know that it can't be done than to forever wonder.

Plus your comparison breaks down a bit. Crypto is still quite early and there is still quite a bit of innovation to be done. This is new ground, not the millionth iteration of a social network. There is exciting work to be done in this space for quite some time, even if it is difficult to meet the legal requirements. Cheers!

2
Styx_OP•

Thanks for your reply. Without taking too much of your time, what might the process of complying with these regulations look like? Is it even feasible for a small fish like me?

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grasshoppa1Quality Contributor•

what might the process of complying with these regulations look like?

It really depends where your customers are located, but it could be anywhere from $50K all the way up to $1M+ in legal fees, admin costs, paperwork, security, KYC process integration, etc. Not to mention the bonds many states require to be an MSB.

4
Styx_OP•

I was afraid of that. I appreciate the advice, cheers.

1
huckfinnster•

Your question is beyond the scope of this sub, really. There is no clear legal path right now, because it hasn’t been blazed, to my knowledge.

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Styx_OP•

Makes sense. There's a lot of money to be made here, so one would assume if it were easy, it would have been done already. Thanks for your reply.

1
huckfinnster•

You might find more in-depth responses in r/legaladviceofftopic

3
Styx_OP•

I'll make a post, thanks!

1
michapman•

I recommend taking the advice of the above and seeking a lawyer. What you’re describing is essentially becoming a clearinghouse/bank which is a whole thing.

One thing that I would suggest is to avoid using your personal bank account for your business. Comingling your personal funds with your clients’ funds is creates horrible messes and it really would be better to just open a separate bank account for your business exclusively (and this isn’t just a crypto thing — it would be a good idea for any form of business).

3
Styx_OP•

Thanks for the wisdom. I should have known better than to throw such a hair-brained idea out there, but I'm not very law savvy :)

I'm essentially just trying to get some idea of if this is even feasible for an Average Joe like myself to even consider. I would look into speaking with a lawyer if I thought it was.

In your opinion, is it feasible for a normal dude like myself to accomplish something like this, or will I need 10 million dollars and a team of lawyers? Thanks!

1
Vikkunen•

So shapeshift for fiat.

You would have to register as a securities broker in every jurisdiction where you plan to operate, stick to stringent KYC anti-money laundering requirements, etc etc etc.

TLDR- There's a reason very few Cryptocurrency exchanges deal in fiat.

2
grasshoppa1Quality Contributor•

You would have to register as a securities broker

Actually it sounds like an MSB, not a securities broker.

3
Vikkunen•

Good catch -- that's the word I was looking for.

Doesn't change that he's looking to step into a regulatory minefield though.

2
FindtheTruth5•

Yeah don't do it unless you have big backing and lawyers at hand.

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grasshoppa1Quality Contributor•

You will need to, at the very least, be registered as a money service business with FinCEN and be a licensed money transmitter/money service business in every state your users live in (as well as other countries if you serve users outside of the US).

This is in-person lawyer territory, and you may need multiple.

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Styx_OP•

Thanks again for the reply! I replied to another one of your comments further up the thread. Any additional clarification would be much appreciated, feel free to do a 30,000 ft overview if you'd like.

1
swalsh411Quality Contributor•

Oh I don't know maybe federal money laundering laws. I believe it's a 20 year sentence.

1†
Styx_OP•

I thought I made it obvious in my post that I do not intend to break the law. Thus the whole point of me coming here to ask. No need to be snarky.

2