As the first state to follow New York’s lead in issuing a crypto-specific license, Louisiana began accepting Louisiana Virtual Currency Business Activity (VCBA) license applications as of January 1, 2023. All entities engaged in “virtual currency business activity” need to obtain licensure by July 1, 2023, to continue operations. This includes entities that are currently licensed money transmitters in Louisiana.
While VCBA licenses need to be obtained by July 1, Louisiana has stated that all applicants who file a “completed application” by April 1, 2023, will be guaranteed an official decision by June 30, 2023—the day before the licensure is required. This does not mean, however, that a crypto exchange or other entity conducting “virtual currency business activity” can wait until April 1 to file its “completed application.”
Applications are only deemed “completed” when the application has been officially noted as “Pending – Review” without any outstanding deficiencies. Applicants can expect some back and forth after their initial filing of the VCBA application before Louisiana deems the application “complete.” Pursuant to the VCBA’s statutory language, “[a]n application for a license pursuant to the Section shall not be complete until the department receives all information required… and completes its investigation[.]” The emergency rule language further provides that an “[a]pplication for licensure and notices of registration pursuant to this Section shall not be complete until the department: 1. Receives all information required by applicable provisions of the VCBA; and 2. Completes its investigation pursuant to R.S. 6:1385D.” We anticipate that there will be an influx of filings in Louisiana and as a result, the completion of applications may be delayed. Getting on file sooner rather than later will be crucial to the efficient processing of an application.
Companies requiring licensure should act now as this process is anticipated to be similar to the NY BitLicense regime, which starts the clock on when the New York Department of Financial Services must make a decision upon an application that has been deemed officially “complete.” This generally results in a series of meetings, letters, presentations and follow-ups prior to an application being deemed “complete.” We anticipate that Louisiana will be conducting similar diligence as it has explicitly stated in its statute that it must have “concluded” its investigation before the application is deemed “complete.” This means that crypto exchanges and others conducting “virtual currency business activity” need as much time as possible to prepare and file applications.
As of July 1, 2023, entities will be unable to continue conducting “virtual currency business activities” in Louisiana if they do not hold a VCBA license or are not otherwise exempt from licensure. Entities that continue to conduct “virtual currency business activity” in Louisiana are subject to civil penalties for each individual violation of the VCBA and are further subject to additional “enforcement measures.”
Louisiana defines “virtual currency business activity” as follows:
(a) Exchanging, transferring, or storing virtual currency or engaging in virtual currency administration, whether directly or through an agreement with a virtual currency control services vendor.
(b) Holding electronic precious metals or electronic certificates representing interests in precious metals on behalf of another person or issuing shares or electronic certificates representing interests in precious metals.
(c) Exchanging one or more digital representations of value used within one or more online games, game platforms, or family of games for either of the following:
(i) Virtual currency offered by or on behalf of the same publisher from which the original digital representation of value was received.
(ii) Legal tender or bank credit outside the online game, game platform, or family of games offered by or on behalf of the same publisher from which the original digital representation of value was received.
A series of “regulated financial institutions” are exempt from VCBA licensing requirements. Notably, registered money service businesses and licensed money transmitters are not among those exempt “regulated financial institutions.”
For those entities that already hold a Louisiana money transmitter license, certain VCBA requirements will have already been uploaded to the Nationwide Multistate Licensing System (NMLS). Other obligations require information associated with the entity’s previous money transmission activity. There are also a series of requirements that are novel to the VCBA license. These include relatively comprehensive inquiries concerning the servers, a VCBA policy, and more robust disclosures concerning “investigations.” Louisiana has just opened its doors to VCBA license applications. While many market participants believe they have until April 1 to file, the reality is that applications should be filed as soon as possible to ensure that Louisiana deems the application “complete” before the April 1 deadline.
McDermott’s fintech & blockchain team can help you navigate the nuances of the VCBA license application and meet its rapidly approaching deadline. McDermott’s crypto team, specifically, consists of lawyers who spend 100% of their time serving the crypto industry. We also have a sub-team of dedicated lawyers who focus exclusively on state crypto regulations and licensing.
See LAC 10:XV.1905(B) (“Completed applications for licensure and notices of registration submitted on or before April 1, 2023 will be approved, conditionally approved or denied on or before June 30, 2023.”).
See NMLS License Status Definitions (“Pending – Review” status is “assigned once the regulator has received external documents per checklist, completes a preliminary review of new license request and decides to accept the filing for processing.”)
See 23 NYCRR § 200.6(b) (“The superintendent shall approve or deny every application for a license hereunder within 90 days from the filing of an application deemed by the superintendent to be complete.”).
See La. Stat. § 6:1382(13)(a) (“‘Regulated financial institution’ means a federally chartered or state-chartered depository institution and its wholly-owned subsidiaries, a Louisiana state-chartered trust company a trust company chartered by another state, or a federally chartered trust company.”).