Regulatory Compliance

1. Overview

SatsRail does not operate Lightning nodes, does not hold private keys, does not take custody of funds, and does not participate in the payment routing process. SatsRail is a read-only observer of a public monetary network with the ability to generate payment requests on behalf of merchants.

Based on a detailed review of FinCEN Guidance FIN-2019-G001 (May 9, 2019), SatsRail's software-only, non-custodial, observer model does not constitute money transmission under federal BSA regulations and therefore does not require registration as a Money Services Business (MSB) or a federal money transmitter license.

2. Scope of Operations

2.1 What SatsRail Does

SatsRail performs exactly two functions:

1. Generates Lightning invoices on behalf of the merchant, using the merchant's own non-custodial wallet via the Alby Hub. The invoice is the merchant's invoice, created at the merchant's wallet. SatsRail triggers the API call but the invoice belongs to and is payable to the merchant.
2. Listens to the public Lightning Network to confirm whether a payment has arrived at the merchant's wallet. This is a read-only observation of a public monetary network. SatsRail then updates the merchant's dashboard to reflect the payment status.

That is the entirety of SatsRail's involvement in the payment process. Everything else — the movement of Bitcoin, the routing of payments, the settlement of funds — happens entirely on the Lightning Network between the customer's wallet and the merchant's wallet, without any SatsRail participation.

2.2 What SatsRail Does NOT Do

• Does not move, hold, route, or transmit Bitcoin at any point in the payment flow
• Does not operate any Lightning Network nodes
• Does not hold, store, or control private keys for any merchant or customer
• Does not accept value from one party and transmit it to another
• Does not have custody of or independent control over any funds at any time
• Does not exchange, convert, or broker Bitcoin for fiat currency
• Does not operate a hosted wallet service
• Does not participate in payment routing — payments route through the Lightning Network independently
• Does not charge per-transaction fees — operates on a SaaS subscription model

2.3 Payment Flow

As shown above, SatsRail's involvement is limited to two software operations: generating an invoice (Step 2) and observing the network (Step 5). At no point does Bitcoin pass through SatsRail-controlled infrastructure.

3. Compliance Controls

SatsRail is built compliance-first. Every control described below was designed and implemented before the first live merchant transaction. SatsRail knows who its merchants are, caps every transaction at a defined limit, and can respond to law enforcement requests immediately. These are not retrofitted policies — they are structural features of the platform.

3.1 Transaction Limit

SatsRail enforces a maximum order value of $200 USD equivalent in satoshis, applied at the API layer across all merchants and subscription tiers. This limit cannot be overridden by a merchant.

The $200 ceiling reflects SatsRail's actual product design — the platform is built for content paywalls, point-of-sale payments, and API micropayments, where $200 is a natural upper bound. It also places every SatsRail transaction well below the $3,000 Bank Secrecy Act record-keeping threshold (31 CFR § 1010.410(e)) and far below the $10,000 Currency Transaction Report threshold (31 U.S.C. § 5313).

3.2 Merchant Verification and Know Your Customer (KYC)

No merchant can process live payments without first passing a compliance review. Every new merchant enters a pending review state after accepting SatsRail's required legal agreements. A SatsRail compliance administrator must explicitly approve the account before it is activated. Approval and rejection decisions are logged with a timestamp, reviewer identity, and written notes, creating a verifiable, auditable record for every merchant.

There are no automatic approvals at any subscription tier. All paid plan merchants are subject to full Know Your Customer (KYC) verification before approval, which requires:

• Government-issued photo ID — identity verification of the account holder
• Business registration or license — confirmation of legal business formation
• Proof of address — verification of business or personal address

The Free plan is exempt from document verification and is subject to a $500/month volume cap. KYC documentation is reviewed as part of the compliance decision for all paid plan merchants. This means SatsRail has explicit, documented knowledge of who operates on the platform at any paid tier, and every onboarding decision is a deliberate, recorded act of due diligence.

3.3 Law Enforcement Cooperation

SatsRail can lock any merchant account immediately upon a valid law enforcement request. When an account is locked, all API keys are revoked, invoice generation is disabled, and key delivery is suspended. This takes effect immediately and does not require advance notice to the merchant.

Because SatsRail is non-custodial, there are no funds to seize — Bitcoin settles directly into the merchant's own wallet and SatsRail never touches it. What SatsRail can do is terminate a merchant's access to the platform at once and produce records on request, including:

• Merchant account information and identity documents (where KYC was collected)
• API usage data and order and payment records
• Legal agreement acceptance records, including timestamps and IP addresses
• Product names and prices listed by the merchant

SatsRail does not possess content URLs, decryption keys, or buyer identity — these are architectural facts, not policy choices — and cannot produce data it does not hold. For compliance inquiries, contact compliance@satsrail.com.

4. FinCEN Regulatory Analysis

The following analysis is based on FinCEN Guidance FIN-2019-G001, "Application of FinCEN's Regulations to Certain Business Models Involving Convertible Virtual Currencies," issued May 9, 2019.

4.1 Definition of Money Transmission

Under 31 CFR § 1010.100(ff)(5)(i)(A), money transmission services are defined as the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means.

Money transmission requires two elements: (1) acceptance of value and (2) transmission of value. SatsRail performs neither. SatsRail does not accept Bitcoin from any person, and it does not transmit Bitcoin to any person or location. The actual movement of value occurs entirely between the customer's wallet and the merchant's wallet on the Lightning Network, without any SatsRail involvement.

4.2 Software/Tool Provider Exemption

Reference: 31 CFR § 1010.100(ff)(5)(ii)(A); FIN-2019-G001, Section 4.5.1(b)

FinCEN regulations explicitly exempt from the definition of money transmitter those persons providing the delivery, communication, or network access services used by a money transmitter to support money transmission services. The guidance further states that suppliers of tools (communications, hardware, or software) that may be utilized in money transmission are engaged in trade and not money transmission.

SatsRail is a supplier of software tools. It provides two specific software functions: (1) an API call that generates a Lightning invoice from the merchant's own wallet, and (2) a network listener that observes whether a payment has arrived. These are communication and network access services — precisely the category FinCEN exempts. SatsRail does not accept or transmit value; it creates a payment request and observes the result.

4.3 Non-Custodial Wallet Framework

Reference: FIN-2019-G001, Sections 4.2.1 and 4.2.2

The FinCEN guidance identifies four criteria for determining whether a CVC wallet intermediary is a money transmitter. SatsRail's position is even stronger than a typical non-custodial provider because SatsRail is not a wallet provider at all — it is a software observer that interfaces with the merchant's existing wallet.

4.4 Distinguishing SatsRail from CVC Payment Processors

Reference: FIN-2019-G001, Section 4.6

Section 4.6 classifies CVC payment processors as money transmitters — entities that collect CVC from the customer and then transmit currency or funds to the merchant. SatsRail does neither.

5. Conclusion

Based on the analysis of FinCEN Guidance FIN-2019-G001, SatsRail does not meet the definition of money transmission under federal BSA regulations. The conclusion rests on three pillars:

1. No acceptance or transmission of value. SatsRail never accepts Bitcoin from any person and never transmits Bitcoin to any person or location. The two fundamental elements of money transmission are entirely absent from SatsRail's operations.
2. Software/tool provider exemption. SatsRail provides communication and network access services (invoice generation and network observation). Under 31 CFR § 1010.100(ff)(5)(ii)(A), suppliers of software tools used in money transmission are engaged in trade and not money transmission.
3. Zero custody, zero control. SatsRail does not operate nodes, hold keys, store value, or exercise any independent control over any funds at any time. SatsRail is a passive, read-only observer of a public monetary network.

6. State-Level Analysis

6.1 California Digital Financial Assets Law (DFAL)

California's Digital Financial Assets Law (AB 39, effective July 1, 2025, with licensing enforcement beginning July 1, 2026) establishes a state licensing regime for digital financial asset businesses. SatsRail is a California LLC and has completed a legal review of whether DFAL licensing applies to its operations.

Legal review completed: Independent legal counsel has reviewed SatsRail's architecture and concluded that SatsRail does not require a DFAL license. DFAL targets entities that exchange, transfer, or hold digital financial assets on behalf of others. SatsRail performs none of these activities.

SatsRail communicates with merchants' wallets exclusively through the LNURL-pay protocol, an open public standard defined by three specifications: LUD-16 (Lightning Address resolution), LUD-06 (invoice generation), and LUD-21 (payment verification). The entire integration consists of standard HTTP requests against public protocol endpoints. The LNURL-pay protocol itself has no mechanism for initiating withdrawals, transferring funds, viewing balances, redirecting payments, or accessing private keys. It is architecturally impossible to exercise fund control through this protocol — SatsRail's non-custodial posture is enforced at the protocol level, not merely by policy or API permissions.

The same non-custodial, software-only analysis that supports the federal FinCEN exemption (Section 4 above) applies under DFAL. SatsRail does not exchange, transfer, or hold digital financial assets on behalf of any person at any point in the payment flow.

6.2 Other States

State money transmitter licensing requirements vary. SatsRail's non-custodial architecture is designed to fall outside the scope of state money transmission statutes. State-by-state analysis is in progress and will be documented as completed. For questions, contact compliance@satsrail.com.

7. Source Reference

Primary Source: FinCEN Guidance FIN-2019-G001, "Application of FinCEN's Regulations to Certain Business Models Involving Convertible Virtual Currencies," May 9, 2019.

Key Regulatory Citations: 31 CFR § 1010.100(ff)(5)(i)(A) (definition of money transmission); 31 CFR § 1010.100(ff)(5)(ii)(A) (software/tool provider exemption); FIN-2013-G001 (2013 VC Guidance); California AB 39 (Digital Financial Assets Law).

Protocol Reference: LNURL-pay protocol — LUD-06 (pay request), LUD-16 (Lightning Address), LUD-21 (payment verification). Open specifications maintained at github.com/lnurl/luds.

Independent Legal Review: Formal written money transmitter opinion issued April 2026 by independent legal counsel, confirming SatsRail does not constitute a money transmitter under federal law and does not require a DFAL license in California. Opinion on file.