Quick Answer
Yes, cryptocurrency is legal to buy, sell, and transact in Hawaii.
- Firms no longer need a state money transmitter license to operate.
- Major exchanges like Coinbase are now available to Hawaii residents.
Legal Status of Crypto in Hawaii
Cryptocurrency is legal in Hawaii, a significant shift that has opened the state to the digital asset industry. State regulators, specifically the Division of Financial Institutions, determined that crypto activities no longer fall under Hawaii's money transmitter laws, removing the need for a state-specific license. This decision followed the conclusion of a multi-year research project, the Digital Currency Innovation Lab. While firms can operate without state-level money transmission oversight, they must still comply with applicable federal requirements from bodies like FinCEN and the SEC.
Current Regulations
As of July 1, 2024, Hawaii has significantly altered its approach to cryptocurrency regulation. The state's Division of Financial Institutions (DFI) announced that crypto company activities are no longer classified as money transmission, thereby eliminating the need for a state-issued money transmitter license. This decision, which followed the conclusion of the state's Digital Currency Innovation Lab, allows digital currency firms to operate as unregulated businesses at the state level. However, these companies must still adhere to all applicable federal requirements, including regulations from FinCEN, the SEC, and FINRA.
Regulatory Authorities
While Hawaii has eased state-level licensing, several state and federal bodies are still involved in the oversight of the crypto industry.
- Hawaii Department of Commerce and Consumer Affairs (DCCA) / Division of Financial Institutions (DFI): This state division previously managed crypto licensing and led the research that resulted in the current deregulated environment. It now focuses on consumer protection and reminds firms of their need to comply with federal rules.
- Hawaii Technology Development Corporation (HTDC): This state agency partnered with the DFI to study the digital currency landscape through the Digital Currency Innovation Lab. Its findings helped shape the state's decision to remove the money transmitter license requirement for crypto firms.
- Financial Crimes Enforcement Network (FinCEN): As a bureau of the U.S. Treasury, FinCEN is responsible for enforcing federal anti-money laundering (AML) laws. Crypto companies in Hawaii must comply with FinCEN registration and reporting requirements.
- Securities and Exchange Commission (SEC): This federal agency regulates assets that are deemed securities, which can include certain cryptocurrencies or investment products. It enforces laws related to the offering and trading of these digital asset securities.
- Financial Industry Regulatory Authority (FINRA): This organization oversees broker-dealers, and its regulations apply to firms involved with digital assets that are classified as securities. It works to protect investors and ensure market integrity in this space.
Historical Context
Hawaii's crypto journey began with a restrictive stance, classifying digital currency firms under its Money Transmitters Act. This required companies to hold cash reserves equal to their crypto assets, a burdensome requirement that deterred many. In 2020, the state launched the Digital Currency Innovation Lab (DCIL), a four-year sandbox program to study the industry. Based on its findings, regulators announced a major policy shift in 2024: crypto activities would no longer be considered money transmission. This change, effective July 1, 2024, removed the state licensing barrier, prompting major exchanges like Coinbase to launch services for residents.
Compliance Requirements for Businesses in Hawaii
Although Hawaii has removed its state-specific licensing for crypto firms, businesses must still adhere to stringent federal regulations designed to combat financial crime. These rules, primarily enforced by FinCEN under the Bank Secrecy Act (BSA), mandate a comprehensive compliance framework. Key requirements include:
- Anti-Money Laundering (AML) Program: Companies must establish a formal AML program. According to BSA/AML program guidance, this includes developing internal policies based on a risk assessment, appointing a dedicated compliance officer, providing ongoing employee training, and conducting independent audits to ensure the program's effectiveness.
- Know Your Customer (KYC): As part of their AML obligations, firms must implement KYC procedures. This involves performing customer due diligence to verify a client’s identity by checking information like Social Security Numbers, birth dates, and other personal data to prevent illicit activities.
- Suspicious Activity Reporting (SAR): Businesses are required to file a Suspicious Activity Report (SAR) with FinCEN for any transaction involving at least $5,000 that they suspect may involve funds from illegal activity, is designed to evade BSA rules, or appears to have no lawful purpose.
- Record-Keeping and Confidentiality: All SARs and their supporting documentation must be kept for five years from the filing date. Furthermore, federal law strictly prohibits disclosing that a SAR has been filed or providing any information that would reveal its existence.
Why this matters for Cross-Border Payments
These federal regulations are particularly significant for cross-border payments, including transactions between Hawaii and countries like India. The stringent AML and KYC checks required by U.S. law can introduce friction and delays, complicating what is often promoted as a seamless process. For businesses facilitating these payments, this creates a substantial compliance burden, as they must navigate the regulatory frameworks of both nations, potentially increasing operational costs and slowing the flow of funds.
How Lightspark Enables Compliant Crypto-Native Payments
Lightspark offers a global payment network called the Money Grid, built on Bitcoin to enable instant, low-cost money movement. Businesses can access this network through two primary products. Lightspark Connect allows for native Bitcoin and Lightning Network integration, managing complexities like node infrastructure and liquidity. For regulated institutions, Grid Switch connects existing domestic real-time payment systems to the network, enabling fiat-to-fiat transfers across borders.
These tools help ease the friction of cross-border payments by streamlining transactions. To help firms meet federal requirements like the Bank Secrecy Act, Lightspark provides features such as audit-ready reporting, flexible custody options, and developer tools with built-in compliance integrations. This infrastructure facilitates adherence to AML and KYC obligations, allowing regulated businesses to leverage crypto-native rails while managing their compliance burden.
To learn more about how Lightspark is modernizing global payments, visit their official website.
Notice: This article is provided for informational purposes only and does not constitute legal advice.
Sources
- Catalani, Iris Ikeda, et al. "BSA/AML Program & SAR Filing Requirements." State of Hawaii, Department of Commerce and Consumer Affairs, July 2012, files.hawaii.gov/dcca/dfi/mortgage-loan-originators/BSA_AML_Program_-_SAR_Filing_Requirements.pdf.
- "Haw. Code R. § 16-77-10 - Supporting documents required." Legal Information Institute, Cornell Law School, 15 Apr. 2004, www.law.cornell.edu/regulations/hawaii/Haw-Code-R-SS-16-77-10.
- Shirzad, Faryar. "Aloha, Hawaii: Coinbase is here." Coinbase Blog, 13 Aug. 2024, www.coinbase.com/blog/aloha-hawaii-coinbase-is-here.
- Sledge-Sarnor, Hilary R., et al. "Hawaii’s Money Transmitters Modernization Act Will No Longer Apply to Cryptocurrency Activities." Greenberg Traurig LLP, 14 Feb. 2024, www.gtlaw.com/en/insights/2024/2/hawaiis-money-transmitters-modernization-act-will-no-longer-apply-to-cryptocurrency-activities.
- State of Hawaii, Department of Commerce and Consumer Affairs. "RELEASE: HAWAI‘I DIGITAL CURRENCY INNOVATION LAB CONCLUDES, PUBLIC REMINDED TO BE AWARE OF RISKS WHILE INVESTING IN DIGITAL CURRENCY." Department of Commerce and Consumer Affairs, 28 June 2024, cca.hawaii.gov/blog/digital-currency-innovation-lab-concludes/.
- Vardai, Zoltan. "Hawaii emerging as crypto hub following new crypto regulations." Cointelegraph, 12 Sept. 2024, cointelegraph.com/news/hawaii-emerging-crypto-hub-new-crypto-regulations.
- Yip, Cynthia. "Hawaii opens its doors to Cryptocurrency Trading, embracing the digital financial frontier." kitv.com, KITV 4 Island News, 14 Feb. 2024, www.kitv.com/news/business/hawaii-opens-its-doors-to-cryptocurrency-trading-embracing-the-digital-financial-frontier/article_b88097d4-cbb7-11ee-968b-4f0fe3ed7e01.html.
