Bitcoin ATMs, Regulations and Compliance

U.S. Treasury Financial Crimes Enforcement Network

With any new industry, the opportunities come first and the regulations usually follow. The Bitcoin ATM industry is pretty new, with the first machine in the U.S. going online in February 2014 and as of this writing, there are 2,227 Bitcoin ATM kiosks in the U.S. and a total of 3,750 crypto ATM kiosks worldwide. Currently, regulations are in place, but aren’t being enforced. As a result, a lot of Bitcoin ATM operators aren’t following state or federal regulations, and this results in a caveat emptor, or buyer beware atmosphere.

WARNING: Using Bitcoin ATMs operated by businesses who are not in compliance with federal and state regulations is risky! At any time, these businesses are at risk of being shut down, and your transactions could be lost.

What are the Federal Regulations?

Step one in the U.S., crypto ATM operators must register with the U.S. Treasury’s Financial Crimes Enforcement Network, or FINCEN. Any money services business or MSB must register initially and renew every two years. FINCEN administers the Bank Secrecy Act, or BSA. The purpose of these federal laws is to detect and and prevent money laundering, terrorist financing, tax evasion and other financial crimes.

Step two, businesses are required to keep records of transactions, collect identification information from users, and create compliance policies to implement Know Your Customer (KYC) and Anti-Money Laundering (AML) processes. 

The KYC regulations require Bitcoin ATM operators to verify the identity of users of their machines and services by establishing a Customer Identification Procedure (CIP). Bitcoin ATM operators who do not verify their customers’ identity in accordance with federal requirements are putting their customers’ transactions at risk.

In addition, operators are required to:

  • incorporate policies, procedures and controls internally to assure compliance with the BSA
  • designate a dedicated Compliance Officer to assure the day-to-day compliance with all regulations
  • provide employee training to equip all employees with the knowledge and training they need to assure compliance
  • conduct independent audits that regularly review all procedures to make sure all rules and regulations are being followed

What are the State Regulations?

Regulations pertaining to crypto ATM operators vary from state to state but generally require operators to obtain a Money Transmitter License (MTL), among other requirements. For a current chart listing the various regulations by state, check out Coin Center’s State Digital Currency Regulation Tracker.

BitLicense and the NYDFS

The New York State Department of Financial Services (NYDFS) established regulations in 2015 for companies applying for a license to conduct financial transactions using virtual currencies, called a BitLicense. The NYDFS is known for imposing heavy regulatory requirements on cryptocurrency businesses as their application process is extremely thorough, very demanding, and to date, in the three years since they instituted the program, they have only granted 14 BitLicenses. Coinsource is proud to be the ONLY Bitcoin ATM operator to have been awarded this prestigious virtual currency license on November 1, 2018.

Coinsource is Serious About Compliance

Instead of easing up on compliance requirements, Coinsource CEO Sheffield Clark considers regulatory compliance one of the highest priorities at Coinsource. “Compliance is key. Once we learned how important compliance was – and the transparency we would have to have with our banks to be successful in getting an account – we obviously invested heavily in building our AML [anti-money laundering] and KYC [know your customer] program and then staffing it correctly with experts that could support us in the venture.” 

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