On January 25, 2024, the Hawaii Department of Commerce and Consumer Affairs Division of Financial Institutions (DFI) and the Hawaii Technology Development Corporation jointly issued a press release summarizing their findings on the proper regulatory framework for companies specializing in digital currency activity, also known as Crypto Companies. The press release concludes that the DFI will not apply the state’s Money Transmitters Act to cryptocurrency activities, meaning that Crypto Companies will no longer need a Hawaii-issued money transmitter license to conduct business in the state. This decision allows Crypto Companies to operate in Hawaii as unregulated businesses.
However, the DFI does expect Crypto Companies to comply with any applicable federal licensing or registration requirements, including those set forth by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network, U.S. Securities and Exchange Commission, and the Financial Industry Regulatory Authority. This includes federal regulations related to consumer protection and anti-money laundering measures.
Hawaii’s decision to not regulate cryptocurrency activity under pre-existing money transmission licensing regimes aligns with other states such as Wyoming. It is worth noting that Hawaii did not follow the lead of California, which recently implemented a cryptocurrency-specific regulatory regime and joined states like New York and Louisiana.
The press release also mentions the closure of Hawaii’s regulatory sandbox program, the Digital Currency Innovation Lab (DCIL), on June 30, 2024. Regulatory sandboxes allow certain companies to operate under temporary, experimental rules in order to foster innovation while providing state regulators with data to inform regulatory developments. The Agencies’ studies of the DCIL participants led to the determination that Crypto Companies’ activities did not fall under the definition of money transmission outlined in Hawaii’s Money Transmitters Modernization Act. Additionally, the press release notes that, despite efforts from the Agencies and industry companies, a special digital currency licensing scheme could not be devised that adequately protected Hawaii consumers.
This announcement is a positive development for Crypto Companies looking to operate in Hawaii. Prior to the press release, many Crypto Companies avoided doing business in Hawaii due to the state’s requirement for Crypto Companies to hold “permissible investments” equal to the aggregate market value of their outstanding transmission obligations, including digital currency transmission obligations. These investments, as defined in Haw. Rev. Stat. § 489D-4, were not considered permissible by Hawaii, making it difficult for Crypto Companies to comply.
Hawaii is one of eight states in the United States with a regulatory sandbox program for virtual currency, blockchain, and other financial technology innovations. These states include Arizona, Florida, Nevada, North Carolina, Utah, West Virginia, and Wyoming, with other state legislatures considering similar sandboxes. For example, New Hampshire’s proposed bill, HB 1507, aims to create a financial services regulatory sandbox.
