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Legal Services for Cryptopreneurs

ATS Platforms

Our Law Firm assists clients with obtaining federal and state registration to operate as an Alternative Trading System (ATS). While ATS is so far the best suited model for creating a marketplace for digital assets in the US, registration and operation of ATSs trading digital assets involves novel issues and challenges. Our experience in digital assets and traditional securities, joined by constant communication with the regulators, provides for a unique and effective ATS solution to our clients.   

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Helping Clients Navigate Through ATS Registration Requirements and Challenges

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Digital asset platforms, which are considered trading securities in the US, are subject to securities laws requiring such platforms to be registered as a national securities exchange (NSE) or fall within an exemption from an NSE registration.  One exemption from registration as an NSE allows a company to conduct a digital asset platform business if such company is registered as an ATS.

A lot of platforms providing a marketplace for digital tokens fall squarely within the definition of an ATS. Every ATS must still be registered with the SEC, provide multiple disclosures, implement security measures and comply with the federal reporting requirements, as well as state laws in each state where the ATS operates.

Specifically, Regulation ATS requires that every ATS must (i) register with the SEC as a broker-dealer, (ii) become a member of a self-regulatory organization (SRO), such as FINRA, (iii) file an extensive initial operating report (Form ATS) and (iv) have an ongoing compliance program to maintain the ATS and broker-dealer operations.

ATS registration process includes voluminous submissions to the SEC, including information about the traded securities, subscribers, operating procedures, etc. After registration, the ATS will have to comply with ongoing reporting requirements and other obligations, such as file quarterly transaction summaries and permit examination and inspection of the site, systems, and records by the SEC and FINRA in case of inspection or investigation. Also, as broker-dealers and FINRA members, ATSs are subject to strict standards of due diligence.

In addition, the SEC recently announced that it had voted to adopt amendments to Regulation ATS to require, among other things, stringent public disclosures of an ATS’ conflict of interests, risk of leakage of sensible information, procedures and operations, as well as additional safeguards dealing with confidential information. The amendments are supposed to take effect in 2019.

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Guiding Clients Through Each Step of ATS Registration

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One of the challenges for registering an ATS is that the SEC and FINRA currently lack sufficient experience and technical understanding of the digital assets and trading platforms, which requires back-to-back communication and meetings with FINRA throughout the registration process.

Having experience in digital assets, including security tokens, and traditional securities, we represent our clients before the SEC and FINRA throughout the whole ATS registration process to achieve the result. Our partners are in the constant process of communicating with the SEC and FINRA representatives regarding the most efficient ways of registering and operating an ATS.

Our services throughout ATS registration process (with the concurrent FINRA and broker-dealer registration) include:

  • Preparation of FINRA New Member Application (Form NMA);

  • Preparation of Form ATS for submission to the SEC and FINRA;

  • Preparation a detailed business plan and other required operational and financial disclosures and procedures;

  • Preparation of AML policies and procedures;

  • Training or procurement of a chief compliant officer (COO);

  • Preparation to and attending with client the pre-membership interview with FINRA;

  • Communications with the SEC;

  • Structuring relations with banks and clearing agents;

  • Preparation of alternative self-clearing ATS operational structures;

  • State registration and filings in all 50 states plus US territories;

  • Preparation of other forms, filings, disclosures and procedures to register an operational ATS.

 

While the process of registering an ATS is complex and challenging, it is achievable with proper planning, structuring and communicating with the US regulators, generally within 6-12 months.

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Resources for Registering/Operating ATS:

Broker-Dealer Registration

Our Law Firm helps companies involved in sales digital assets, such as security tokens and other forms of cryptocurrencies, in going through the US federal and state registration as a broker-dealer. We assess the activities that may require registration and provide full support in obtaining and maintaining registration of a broker-dealer.

We also consult our clients in exploring possible alternatives to broker-dealer registration, including cooperation with already registered broker-dealers or becoming a successor of a registered broker-dealer. 

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The US Securities Exchange Act of 1934 (the “Exchange Act”) defines a broker as “any person engaged in the business of effecting transactions in securities for the account of others.” Definition of a dealer covers a person that is “engaged in the business of buying and selling securities for his own account, through a broker or otherwise” but excludes persons who buy or sell securities for their own accounts but not as part of a regular business. Entities as well as individuals may be considered broker-dealers.

Broker-dealer definition is interpreted very broadly. Any intermediaries in securities transactions, with include sales of security tokens, generally, fall within the definition of a broker and must register as a broker with the SEC. They must additionally join a self-regulatory organization (such as FINRA or a registered national securities exchange).

Every ATS, crowdfunding platform, STO platform or security token issuer will face broker-dealer issues that may require registration of the company or its agents as broker-dealers. The registration process is meticulous, and a registered broker-dealer is subject to numerous due diligence and compliance requirements and obligations.

 

We advise on a broad range of broker-dealer registration issues, including:

  • Registration as a broker-dealer;

  • Possible structures alternative to broker-dealer registration;

  • Regulatory compliance of a broker-dealer, including risk assessment, supervisory and reporting requirements.

 

Our comprehensive broker-dealer registration services include:

  • Preparation of FINRA New Member Application (Form NMA);

  • Preparation a detailed business plan and other required operational and financial disclosures and procedures;

  • Preparation of written supervisory procedures;

  • Preparation of AML policies and procedures;

  • Training or procurement of a chief compliant officer (COO);

  • Preparation to and attending with client the pre-membership interview with FINRA;

  • Communications with the SEC;

  • Advising on the company’s capitalization;

  • Structuring relations with banks;

  • State registration and filings in all 50 states plus US territories;

  • Preparation of other forms, filings, disclosures and procedures to register an operational broker-dealer.

 

Resources:

SEC Guide to Broker-Dealer Registration

SEC Exemptions from Broker-Dealer Registration

Registration requirements for Non-Finra Broker Dealers and Salespersons

New York State Broker-Dealer and Securities Registration Information Sheet

California Broker-Dealers, State Investment Advisers and SEC Investment Advisers

Applying for Broker-Dealer Registration in Connecticut

New York BitLicense

Our Law Firm assists in obtaining of Virtual Currency Business Activity Licenses, or BitLicenses, to digital- or cryptocurrency businesses that want to operate in New York or offer their services to New York residents. The BitLicense requirement is an addition to the state’s Money Transmitter License requirement for the businesses involved in transmission of fiat currencies.

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Helping Clients Navigate Through BitLicense Requirements and Challenges

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Any person engaging in “virtual currency business activity” involving New York or its residents must obtain a a BitLicense. Pursuant to the rules promulgated by the New York Department of Financial Services (DFS), “virtual currency business activity” includes any one of the following:

(1) receiving virtual currency for transmission or transmitting virtual currency, except where the transaction is undertaken for non-financial purposes and does not involve the transfer of more than a nominal amount;

(2) storing, holding, or maintaining custody or control of virtual currency on behalf of others;

(3) buying and selling virtual currency as a customer business;

(4) performing exchange services as a customer business; or

(5) controlling, administering or issuing a virtual currency.

The term “virtual currency” is construed broadly, means “any type of digital unit that is used as a medium of exchange or a form of digitally stored value,” whether centralized or decentralized, and is synonymous to what is commonly referred to as “cryptocurrency” or “digital currency”. However, mere development and distribution of software does not require a BitLicense.

Thus, transmitting or even holding digital currency may require obtaining and maintaining a NY Bitlicense, which may become an extensive and cumbersome procedure. Even though DFS is obligated to process a BitLicense application within 90 days after the filing is complete, this period may be extended in DFS’ discretion and include requests for additional information. DFS may also grant conditional BitLicenses in its discretion.

In a modernization effort, DFS now allows companies applying for, updating or maintaining BitLicenses to submit most of the documents online – utilizing the Nationwide Multistate Licensing System and Registry (NMLS). A company is not required to provide redundant information if it is applying for both NY BitLicense and Money Transmitter License.

Still, obtaining a BitLicense is a serious undertaking that will involve costs and resources related to the application and ongoing compliance, including minimal capital requirements, surety bond or trust account and full reserves.

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Guiding Clients Through NY BitLicense Application Process

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Our lawyers advise and guide clients throughout the BitLicense application process, which requires clients’ cooperation in providing the detailed information about the company, its owners, officers, business plan and operations to DFS for the most efficient processing, including:

  • Information about directors, principal officers, principal stockholders and principal beneficiaries;

  • Formation documents and good standing certificate;

  • Organizational chart;

  • Surety bond;

  • Description of the proposed, current, and historical business of the applicant;

  • Description of products and fee schedule;

  • Explanation of the methodology used to calculate the value of virtual currency in fiat currency;

  • Specimen form of all agreements, documents, receipts and disclosures that the applicant plans to issue or use with NY customers;

  • Copies of any other agreements the applicant has entered into (or will enter into) in connection with the virtual currency business activity;

  • Flow of funds structure;

  • Corporate and personal financial statements;

  • Affidavits and questionnaires;

  • AML procedures, cybersecurity programs and other company staffing and internal policies;

  • Fingerprints;

  • Background investigation reports;

  • Etc.

 

A company with an existing BitLicense will be subject to an ongoing reporting and should also consult with a legal counsel when it adds a new product, service or activity to its business or in the case of a change in control because a material change in the business or ownership may require a written approval from DFS.

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Resources for Obtaining NY BitLicense:

MT Licensing

Our law Firm assists clients that accept, hold and/or transmit fiat and cryptocurrencies with obtaining and maintaining Money Transmitter Licenses (MTLs) – the state and federal licenses required to operate as a Money Services Business (MSB).

As each U.S. state has separate MTL requirements, our lawyers advise fintech and digital currency businesses on the best MTL strategy and represent the clients throughout the concurrent MTL application procedures.

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Helping Clients Navigate Through MTL Requirements and Challenges

 

With limited exceptions, any business that accepts and transmits funds, including cryptocurrencies, such as bitcoin, will be considered an MSB and require an MTL in each U.S. state where the business operates. Money transmitters are a part of a broader category of MSBs. So, the terms MTL and MSB are related and often used together.

While registration on the federal level is relatively straightforward, the MSB legislation is not harmonized and almost all 53 states and territories have their own regulations, requirements and exceptions for money transmitter licensure. In addition, New York established a separate license for digital currency businesses, the so-called “BitLicense” – a license required to engage in any “virtual currency business activity”.

MTL requirements vary state-by-state but usually include registration with the Financial Crimes Enforcement Network (FinCEN), background checks, application fees, security (surety bond), maintenance of permissible investments, minimum net worth, business plan and a compliance program. MTL-related costs and processing times may differ significantly from state to state, especially compared to New York and California. The costs may exceed a $1 million, excluding legal fees, and the processing times may take from several months to 1-2 years.

Because of the lack of consistent regulation, companies tackling the U.S. MSB market must develop a comprehensive strategy to get MTLs. When obtaining MTLs, a business may choose to prioritize some states and apply first there but will be prohibited from operating in the states where it does not maintain an MTL.

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Guiding Clients Through MTL Application Procedures in Every State

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Our lawyers advise and assist clients throughout the MTL application process, including the following steps:

  • Developing an MTL strategy nation-wide for traditional businesses and cryptocurrency trading platforms and exchanges;

  • Submitting applications in individual states;

  • Preparing a business plan, summary of historical and current operations, financial statements, affidavits and other required documentation;

  • Acquiring mandatory surety bonds;

  • Completing FinCEN registration;

  • Accomplishing necessary corporate actions, including local qualification of out-of-state companies, provision of registered agents, drafting/amending corporate governance documents;

  • Developing anti-money-laundering (AML) and other compliance programs;

  • Representing clients in communications with the federal and state agencies;

  • Maintaining and renewing MTLs.

 

Resources:

 

Federal

 

State Money Transmitter Licensing Authorities:

StateState Money Transmitter Licensing Authority

AlabamaAlabama Securities Commission

AlaskaAlaska Division of Banking and Securities

ArizonaArizona Department of Financial Institutions

ArkansasArkansas Securities Department

CaliforniaCalifornia Department of Business Oversight

ColoradoColorado Division of Banking

ConnecticutConnecticut Department of Banking

DelawareDelaware Office of the State Bank Commissioner

District of ColumbiaDistrict of Columbia Department of Insurance, Securities and Banking

FloridaFlorida Office of Financial Regulation

GeorgiaGeorgia Department of Banking and Finance

HawaiiHawaii Department of Commerce and Consumer Affairs

IdahoIdaho Department of Finance

IllinoisIllinois Department of Financial & Professional Regulation

IndianaIndiana Department of Financial Institutions

IowaIowa Division of Banking

KansasKansas Office of the State Bank Commissioner

KentuckyKentucky Department of Financial Institutions

LouisianaLouisiana Office of Financial Institutions

MaineMaine Office of Consumer Credit Protection

MarylandMaryland Department of Labor, Licensing & Regulation

MassachusettsMassachusetts Office of Consumer Affairs and Business Regulation

MichiganMichigan Department of Insurance and Financial Services

MinnesotaMinnesota Department of Commerce

MississippiMississippi Department of Banking and Consumer Finance

MIssouriMIssouri Division of Finance

MontanaMontana Division of Banking & Financial Institutions

NebraskaNebraska Department of Banking and Finance

NevadaNevada Department of Business & Industry

New HampshireNew Hampshire Banking Department

New JerseyNew Jersey Department of Banking & Finance

New MexicoNew Mexico Regulation and Licensing Department

New YorkNew York Department of Financial Services

North CarolinaNorth Carolina Commissioner of Banks

North DakotaNorth Dakota Department of Financial Institutions

OhioOhio Department of Commerce

OklahomaOklahoma Banking Department

OregonOregon Division of Financial Regulation

PennsylvaniaPennsyvlania Department of Banking and Securities

Rhode IslandRhode Island Department of Business Regulation

South CarolinaSouth Carolina Attorney General

South DakotaSouth Dakota Division of Banking

TennesseeTennessee Department of Financial Institutions

TexasTexas Department of Banking

UtahUtah Department of Financial Institutions

VermontVermont Department of Financial Regulation

VirginiaVirginia State Corporation Commission

WashingtonWashington State Department of Financial Institutions

West VirgniaWest Virginia Division of Financial Institutions

WisconsinWisconsin Department of Financial Institutions

WyomingWyoming Division of Banking

 

New York

 

California

 

Florida

  • OFR-560-01 – Application to Register as a Money Services Business

  • OFR-560-02 – Location Notification Form

  • OFR-560-03 – Declaration of Intent to Engage in Deferred Presentment Transactions

  • OFR-560-04 – Money Services Business Quarterly Report Form

  • OFR-560-05 – Pledge Agreement

  • OFR-560-06 – Money Services Business Surety Bond Form

  • OFR-560-07 – Security Device Calculation Form

  • Chapter 560, Florida Statutes – Money Services Businesses

  • Rule 69V-560, Florida Administrative Code – Money Transmitters

  • Form OFR-560-09 – Disciplinary Guidelines for Money Services Businesses

  • Security Device Calculation Form

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