Washington DFI Regulatory History of PBS/MPS
A factual account of ScarabCloud Inc.'s engagement with the Washington State Department of Financial Institutions concerning Provenance-Backed Securities and the Meritocratic Provenance System.
Important Context
The Washington State Department of Financial Institutions (DFI) has not endorsed ScarabCloud Inc., PBS/MPS, SeedBid™, Meritocrat.org, or the proposed Washington Provenance-Backed Securities Act.
DFI did not issue a classification ruling determining whether PBS is or is not a security, and DFI did not provide ScarabCloud with legal or financial advice.
Why publish this regulatory history?
ScarabCloud engaged DFI during the development of PBS/MPS to better understand how existing Washington securities laws might apply to the proposed architecture.
This page preserves a clear distinction between what ScarabCloud asked, what DFI actually communicated, and the policy conclusions ScarabCloud subsequently reached.
The objective is transparency. DFI's statements should be evaluated as DFI made them, without implying endorsement, approval, or a classification decision that DFI did not provide.
What did ScarabCloud ask DFI?
In correspondence dated September 16, 2026, ScarabCloud requested four forms of preliminary guidance.
Architecture & Regulatory Posture
Preliminary feedback concerning the PBS/MPS architecture and regulatory posture.
Classification
Initial guidance concerning classification under RCW 21.20.005(17)(a).
Regulatory Pathway
Direction concerning the appropriate regulatory pathway for bringing PBS to market.
Possible Next Steps
Alignment on next steps, including whether DFI would prefer one of the structured deep-dive sessions described in the submission.
What did DFI say about the scope of PBS/MPS?
DFI stated that the PBS/MPS architecture contemplated in ScarabCloud's materials appeared to go well beyond the purview of the securities laws and other laws administered by DFI.
DFI identified property rights and intellectual property as examples of additional legal issues that the architecture could raise.
“To implement the envisioned architecture would most certainly require legislative action touching different areas of the law.”
DFI also explained that its responsibility as an administrative agency is to enforce the laws entrusted to it by the Legislature.
Did DFI say securities laws would not apply?
No.
DFI stated that to the extent the architecture involves the offer or sale of securities, existing state and federal securities-law requirements would apply.
DFI identified registration requirements and potential broker-dealer or investment-adviser licensing requirements.
DFI also emphasized that securities laws are designed to protect individuals who entrust others with their savings.
What did DFI say about Howey and Washington's risk capital test?
ScarabCloud's initial material submitted to DFI included analysis of PBS under the federal Howey test.
During the second meeting, DFI explained that a securities analysis in Washington should also include review of the risk capital test.
ScarabCloud subsequently provided a document addressing that issue. DFI acknowledged that ScarabCloud had reviewed the Howey test and the risk capital test.
DFI did not issue a determination in this correspondence that PBS either is or is not a security.
What registration issues did DFI identify?
DFId or exempt from registration at both the state and federal levels.
DFI also advised ScarabCloud to consider whether the proposed architecture meets the definition of a security under federal law.
DFI further noted that if an offering were not limited to Washington, securities laws of other states could also be implicated.
Did DFI select a regulatory pathway for PBS?
No.
DFI stated that the agency could not provide direction concerning the appropriate regulatory pathway for bringing PBS to market.
DFI stated that this determination would need to be made by the company, ideally after consultation with legal counsel.
Did DFI request additional technical deep-dive sessions?
No.
DFI stated that additional deep-dive sessions would not be productive because DFI cannot provide legal or financial advice as a government agency and because the envisioned architecture extends beyond the laws DFI administers.
Did DFI close further communication?
No.
DFI stated that the agency remained open to continuing general discussions as ScarabCloud moves forward.
DFI also stated that the Division may be able to provide additional informational resources as ScarabCloud confronts new issues.
What did DFI recommend?
DFI encouraged ScarabCloud to engage legal counsel.
DFI characterized the proposal as “extremely complex and innovative.”
DFI recommended securing competent counsel to advise on the many aspects of the proposal that may be subject to existing regulations, including potential securities-law implications.
DFI's statements vs. ScarabCloud's policy conclusions
DFI stated
- PBS/MPS appears to extend beyond the laws administered by DFI.
- The architecture could raise issues involving property rights, intellectual property, and other areas of law.
- Implementing the envisioned architecture would most certainly require legislative action touching different areas of law.
- Existing securities-law requirements would apply where securities are offered or sold.
- DFI could not select the appropriate regulatory pathway for ScarabCloud.
ScarabCloud separately concludes
ScarabCloud believes these cross-domain legal questions justify legislative consideration of a comprehensive provenance-backed securities framework.
That policy conclusion belongs to ScarabCloud and should not be attributed to DFI.
The proposed Washington PBS Act is presented as ScarabCloud's policy proposal, not legislation endorsed or authored by DFI.
What DFI did not determine
No PBS approval
DFI did not approve PBS/MPS.
No classification ruling
DFI did not rule that PBS is or is not a security.
No legislative endorsement
DFI did not endorse the proposed Washington PBS Act.
No market pathway
DFI did not direct ScarabCloud how to bring PBS to market.
What is the practical significance of the DFI correspondence?
The correspondence establishes an important jurisdictional boundary.
PBS/MPS raises questions extending beyond the securities laws administered by DFI, while securities-law requirements may still apply to particular implementations involving securities.
ScarabCloud's continuing work therefore includes legal analysis, legislative discussion, and evaluation of applicable state and federal regulatory frameworks.
Continue exploring PBS/MPS
Regulatory Disclaimer
DFI cannot provide legal or financial advice and does not endorse or recommend ScarabCloud Inc., PBS/MPS, SeedBid™, Meritocrat.org, or the proposed legislation.
This page is published by Meritocrat.org as a summary of ScarabCloud's regulatory engagement. It is not an official DFI publication.