On June 20, the Louisiana Office for Financial Institutions (OFI) proposed a Rule on licensure, registration, and regulation of persons engaging, or planning to engage, in virtual currency business activity in Louisiana. The Rule follows the mandate set by Louisiana’s Virtual Currency Business Act (VCBA), effective August 1, 2020, requiring virtual currency businesses to hold a license in Louisiana and granting administrative and enforcement authority to OFI.
According to OFI, the new proposed Rule, LAC 10:I:1901-19037, provides “clear and concise guidance that will allow for the implementation and enforcement of the provisions of the VCBA.” Specifically, the Rule details requirements regarding the registration, maintenance, and regulation of licenses of virtual currency businesses operating in Louisiana, including the application for a license, approval of control person and change of control, renewal of a license or notice of registration, determination of net worth, examination, recordkeeping, and other policies and procedures that must be adopted by virtual currency businesses.
The proposed Rule also provides definitions of certain terms left undefined by the VCBA, including “Unfair or Deceptive Act or Practice” and “Unsafe or Unsound Act or Practice,” and expands on the prior definitions of other terms, such as “Control.” For example, “Unfair or Deceptive Act or Practice” is defined as “[f]ailure to provide any disclosure or disclosures required by Subsection 1931(C) [Required Disclosures] of this rule … for purposes of taking enforcement action against a licensee, registrant, or person that is neither a licensee nor registrant but is engaging in virtual currency business activity or activities.” However, Subsection 1931(C), titled “Required Disclosures,” fails to identify what disclosures must be provided by a virtual currency business to a person using the licensee’s products or services, instead allowing the Commissioner to determine “by policy” what are the “proper disclosures,” including “the time and form” requirements.
The proposed Rule also provide fees associated with the requirements and penalties for violations. The initial application fee is $5000, along with a $750 initial registration fee. The annual renewal fee for the license is $4,000, and the renewal fee for the registration is $500. The annual licensing and renewal process will be conducted through National Mortgage Licensing System, which is a system for state licensing familiar to many entities and already used for New York’s “BitLicense.”
The proposed Rule allows the Commissioner to levy civil penalties for violations of the VCBA or any rule promulgated under the VCBA. The penalty is “not to exceed $1,000 for each violation, plus the department’s costs and expenses for the investigation and prosecution of the matter.”
Virtual currency businesses already operating in Louisiana, as well as industry participants that may expand into this market, should keep an eye on the developments to this Rule throughout 2022. The comment period ended on July 10, with their expected adoption before the end of 2022.