On November 25, the Washington Department of Financial Institutions (DFI) issued a Temporary Order to Cease and Desist and a Statement of Charges against a virtual-currency kiosk operator, alleging violations of the Uniform Money Services Act arising from its Washington money-transmission activities. The agency alleges that the company engaged in unsafe and unsound practices and failed to safeguard customer funds.
The Statement of Charges and Temporary Order describe financial-condition concerns, recordkeeping deficiencies, reporting inaccuracies, and consumer-protection issues tied to the company’s kiosk-based voucher model. The DFI states that it is seeking license revocation, restitution, civil penalties, and a ten-year industry prohibition while requiring segregated customer accounts and enhanced controls during the interim.
Specifically, the DFI alleges that the company:
- Improperly treated unredeemed voucher balances as income. The agency alleges that unredeemed voucher amounts were claimed as revenue without adequate disclosures or required escheatment to the state.
- Failed to maintain required tangible net worth. DFI asserts that the company operated for multiple years with negative tangible net worth, creating unsafe and unsound conditions.
- Did not maintain accurate or complete records. The company allegedly provided inconsistent permissible-investment information and failed to maintain records sufficient to demonstrate compliance.
- Filed untimely and inaccurate reports. The DFI states that required annual reports and MSB Call Reports contained material inconsistencies and that certain filings were late.
Following these allegations, the Temporary Order directs the company to halt Washington money-transmission activities and to segregate all customer-related assets into individual accounts. The company is also ordered to notify each affected customer, return or escheat unredeemed voucher amounts, provide historical permissible-investment reports, and implement enhanced controls, policies, and training. The Order further requires proof of restitution, full cooperation with DFI, and ongoing record access.
Putting It Into Practice: State regulators have increased their supervisory and enforcement activity amid questions about federal oversight (previously discussed here). Financial institutions operating multistate transmission or kiosk-based models should expect other states to follow suit and should prepare to update compliance controls accordingly.