Crypto Money Transmitter Bonds
Learn more about crypto money transmitter bonds below, or request a quote online today. At Surety Bond Professionals, our experienced surety agents are ready to assist with all of your bonding needs and any questions you may have.
What Are Crypto Money Transmitter Bonds?
Digital currency is new enough that the rules and regulations regarding its use are evolving rapidly. Many people refer to cryptocurrency as Bitcoin, because it was the first cryptocurrency and the one people are most familiar with. But there are more than 800 different cryptocurrencies, and that number continues to grow. So, from here on, we’ll use the generic term “cryptocurrency.”
More and more states are imposing surety bond requirements for cryptocurrency to provide protection for investors and traders and to help prevent the use of cryptocurrency for illegal purposes. Increasingly, people who invest and trade in cryptocurrency are being required to obtain a money transmitter license and a surety bond.
Who Needs Them?
In some states, anyone engaged in the transmission of Bitcoin or other types of cryptocurrency is required to obtain a surety bond. Financial experts expect that before long, however, these requirements will apply in all states. Currently, money transmitters are required to be licensed by the federal government, the District of Columbia, in all but three states.
In states that consider the exchange of cryptocurrency to be a form of money transmission, purchasing a surety bond is a necessary step in the money transmitter licensing process. Money transmitters are required to obtain a separate license in all states from which and to which money is transmitted, which means that a money transmitter may need to be licensed in all 50 states, depending on where they do business.
How Do They Work?
The three parties bound together in a cryptocurrency or money transmitter license bond are the state entity requiring the bond (the obligee), the money transmitter (the principal), and the company that underwrites and issues the bond (the surety).
The required bond amount varies widely from state to state. In some states, the required bond amount for becoming licensed as a money transmitter is based on the applicant’s transaction volume. In other states, it’s a standard amount for all applicants for a money transmitter license. In either case, the required bond amount is set by the obligee.
Money transmitter clients who suffer a financial loss as a result of the principal’s fraudulent practices have a legitimate claim against the bond. The surety will make sure that a claim is valid, and will then pay it, up to the full amount of the bond. That doesn’t let the money transmitter off the hook, though. Surety bonds include a clause requiring the principal to reimburse the surety any valid amount paid to a claimant.
What Do They Cost?
Applications for cryptocurrency bonds typically undergo closer scrutiny than applications for most other types of bonds because of the increased risk. In addition to reviewing the applicant’s credit score, the surety will also seek proof that the business is not engaged in any illegal activity and that it has the financial resources to repay any claims or penalties. Therefore, applicants may have to submit personal and business financial statements and resumes of key personnel or even undergo criminal background checks.
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If you will need a money transmitter license in order to invest and trade in cryptocurrency, you’ll need a surety bond as well. We’re here to help you with that.