California Eyeing Bitcoin Business Licenses

California’s legislature is considering a license for Bitcoin exchanges that would require maintaining bank-style reserves against possible losses, CoinDesk reported.

Under a bill introduced on Friday (Feb. 27) by Assemblyman Matt Dababneh, who chairs the assembly’s Banking and Finance Committee, virtual currency businesses operating in the state would need a license from the Department of Business Oversight unless they had an exemption from the department. Licensees would have to pay a non-refundable $5,000 registration fee, provide identifying information, and keep enough capital in “investment-grade permissible investments” to cover customers’ deposits.

The “permissible investments” under the law include money market funds or U.S.- or state-issued securities — but not virtual currencies.

Exempted businesses include the U.S. Postal Service, government agencies, FDIC-insured commercial and industrial banks, and businesses that are already licensed in California. Also exempt from licensing would be retailers and consumers who only use virtual currency for buying and selling goods. In short, only exchanges and other money-transfer businesses are targeted by the licensing bill.

The requirement for enough reserves to cover deposits is the result of the collapse of Mt. Gox and other Bitcoin exchanges, Dababneh’s press secretary, Chris Ramsey, told CoinDesk. “A lot of people had virtual currency that they thought was safe. I think the bill is partly a response to things like that,” he said. The capital requirements would also discourage fly-by-night operations, he added.

The bill isn’t likely to undergo serious consideration until early April and will probably be amended before then, Ramsey said. California has been wrestling with the question of how to regulate Bitcoin for several years, in part because it wasn’t clear whether virtual currencies already fall under the state’s Money Transmission Act. If enacted, the bill would settle that question.

In late January, Coinbase announced that it had launched a Bitcoin exchange for U.S. customers that was already approved by regulators in California and 23 other jurisdictions. Exactly how that exchange would be affected by any new legislation isn’t clear.