Greater Baton Rouge Business Report – November 9, 2022
Talk of bitcoin and cryptocurrency has been unavoidable in recent years. What should Louisiana businesses understand to play in this new sandbox? First, the American Law Institute (ALI) and the Uniform Law Commission (ULC) have approved amendments to the Uniform Commercial Code (UCC) governing business transactions which will make control of digital assets simpler and more intuitive. As a “uniform law,” it needs to be adopted by state legislatures so this will not be effective in Louisiana for a while.
The new Article 12 introduces and defines “Controllable Electronic Records,” or CERs, which include cryptocurrency, non-fungible tokens (NFTs), and general electronic contracts. There are separate categories for electronic payment intangibles and electronic accounts, and the amendments also define and allow for use of “electronic money” (basically a government-created cryptocurrency).
The amendments expand the definition of “control” (from previous UCC Articles) that now applies to CERs, electronic money, and other electronic records. The concept of control allows for the use of systems to designate to a specific person exclusive rights to a digital asset, such as the benefits of ownership (think of title to your car).
These systems recognize ownership through control, and allow the “owner” to assign control over a digital asset to a third party (a sale) or to a secured lender (a security interest), similar to holding a security interest by possession of tangible personal property.
Second, Louisiana’s Office of Financial Institutions (OFI) now requires virtual currency businesses to hold a license. The OFI anticipates publication of the proposed rule this fall with an effective date of July 1, 2023. Current information is available on the OFI website.
Aimed at financial institutions, the proposed rule contains some routine ad- ministrative items and adds definitions for previously undefined terms, including “Unfair or Deceptive Act or Practice” and “Unsafe or Unsound Act or Practice.” Failure to provide required disclosures under the new proposed rule would automatically be an unfair or deceptive act or practice for purposes of enforcement actions. However, the proposed rule does not identify the specific required disclosures beyond providing that they should be “proper disclosures to persons and individuals who use the licensee’s products or services.” In addition, the rule allows the Commissioner to determine the time and form of such disclosures via policy in the future.
Businesses or individuals who currently or will soon operate a virtual currency business with Louisiana residents will want to review the proposed rule and prepare to apply once the application process opens through the Nationwide Multistate Licensing System (NMLS) on January 1, 2023. Initial application costs are $5,000 per license and $750 per registration. Licensure applications and registration notices submitted by April 1, 2023 will be approved, conditionally approved, or denied by OFI by June 30, 2023.
Reprinted with permission from the Greater Baton Rouge Business Report.