Florida’s top financial regulator seeks cryptocurrency rules

Written by Kylea Henseler on April 6, 2021

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Florida’s top financial regulator seeks cryptocurrency rules

With the state legislature in session, Florida’s top financial regulator Russell Weigel is hoping to modernize the state’s policies on matters like cryptocurrency, banking and securities reform in order to become more competitive with other states.

The former Coral Gables-based securities lawyer who now heads the state’s Office of Financial Regulation says he has presented a number of ideas to lawmakers that are now in various stages of the legislative process.

This session, he said, they have picked up a few of his proposals and some bills are working their way through the House and Senate concerning cryptocurrency and banking modernization. Mr. Weigel’s goal for next session, he said, is for legislators to take up a larger Securities Act reform that addresses three key components that will create a “financial ecosystem” that Florida does not yet have.

This session, he said, the legislature will likely take the first step toward regulating cryptocurrency like Bitcoin, which is already included in the state’s money laundering statute but not its money transmission statute. Adding crypto to the latter statute, he said, would effectively allow the state to regulate it, which will pose a host of new questions. 

“There’s a number of consequences that come with stepping into this realm,” Mr. Weigel said, “but we need to do it because digital assets are coming, there’s no stopping it, and Florida needs a reasonable policy.” 

Questions such as whether banks can hold crypto as an asset or whether customers can hold it in their bank accounts, he said, are just some that will need to be addressed if this item passes.

The legislature, Mr. Weigel said, has also taken up two banking initiatives. One, he said, would allow a “limited exception” to Florida’s Sunshine law intended to prevent a “chilling effect” on new bank startups. Currently, he said, applications for new bank charters are public record – which means that individuals looking to start banks chartered in Florida may avoid doing so, since it could jeopardize their employment. The proposed exception, he said, would “cloak” the application while it is being reviewed and “uncloak” it once it has been adjudicated. 

“I’m cautiously optimistic that the bill will make it through this session,” he said, “but I don’t want to jinx it.” 

The second banking bill, he said, might take longer to get through. This “Banking Modernization Bill,” he said, could allow banks to exist without a brick-and-mortar footprint and operate anywhere within the state or online.

“The current regulatory scheme for banks,” he said “is based on them applying to be a charter with a brick-and-mortar geographic focus. That’s part of the business plan that all banks in the state of Florida have to present. This bill untethered them from having to present a (geographic footprint).”

Next session, Mr. Weigel said, he hopes the legislature takes up a “three-tiered” draft bill that will “create a capital market for small company finance” and protect and provide Florida jobs. Without measures that make funding for startups easy to obtain in Florida, he said, many companies turn to states like California to find investors and may relocate there, taking valuable jobs with them. 

“We have plenty of financial resources available,” he said, “but we don’t have an organized way of connecting investors with local companies.”

The first tenet of this bill, Mr. Weigel said, would allow Florida to adopt a disclosure-based system for securities offerings like the one the SEC uses. Currently, he said, the Office of Financial Regulation is required to review companies that want to register an offering to solicit investors. Under the proposed model, he said, “a company seeking capital has to disclose all material facts to prospective investors, and investors decide whether they want to make the investment.” This way, he said, the office is not required to weigh in on the merits of companies in the private sector.

The second part, he said, is crowdfunding reform. Florida’s laws on this matter, which require companies to go through an online portal registered with the state, don’t work and have never been used as there are no portals registered and no incentives to start one, he said. Mr. Weigel said one possible way to incentivize the creation of portals would be to allow them to function as limited function brokers, which handle marketing rather than money but are not limited to only crowdfunding efforts. A second idea, which he said requires more legal exploration, would allow companies to use the internet themselves instead of going through a portal at all. 

The third portion of the bill, Mr. Weigel said, would allow Florida to license another type of limited-function brokers called “finders,” which would introduce companies and investors. California and Texas, he said, already allow this position. The finders, he said, would function similarly to portals in making introductions but would not handle cash, and the Office of Financial Regulation would be responsible for running background checks.

Details: Floridians can provide feedback through https://app.smartsheet.com/b/form/2f5744b886124527836966544143b518? or by emailing feedback@flofr.gov.