Digital Currency Developments in Hawaii
On March 17, 2020, the governor of Hawaii announced a program between the Hawaii Department of Commerce and Community Affairs, the Division of Financial Institutions (“DFI”) and the Hawaii Technology Development Corporation. This joint effort is termed the Digital Currency Innovation Lab.
The principal focus of the initiative is to permit digital currency issuers and companies to do business in Hawaii without obtaining a money transmitter license from the Hawaii DFI. Digital currency companies must be admitted to the program in order to qualify for the exemption from obtaining a money transmitter license. Applications to join the program will be accepted until May 1, 2020.
How would federal money transmitter rules be affected?
The state of Hawaii does not have the legal authority to exempt companies from federal laws applicable to money transmission activities. Accordingly, a company that joins this program would still need to register with the Department of the Treasury and meet all of the requirements applicable to registered money service businesses under federal law. The Frequently Asked Questions (“FAQs”) provided by Hawaii confirm that other state and federal laws will continue to apply to participants in the program.
Can out of state companies join?
Yes, companies admitted to the program could do business in Hawaii. It should be noted that the program is a two year pilot program and it is not clear what will happen at the end of the two year period. Hawaii’s FAQs suggest that companies will have to wind down business if new legislation is not adopted in Hawaii.
How helpful is this development?
This does not appear to be particularly helpful to companies outside of Hawaii. The program does not exempt Hawaiian companies or out of state companies that meet the Hawaiian requirements from the need to comply with the laws of any other state in which the company may be doing business. A company that is headquartered in Hawaii might find it somewhat helpful by avoiding having to apply as a “money transmitter” under Hawaii law. However, this is a two-year experiment and while it may be extended, that is uncertain. Also, it does not exempt a company from federal law registration requirements, and there is still an application process that has to be completed in Hawaii and the DFI will continue to supervise activities and review applications. Therefore, as a long term solution, it may be better just to apply as a money transmitter if Hawaii is an attractive market.