Among US jurisdictions, New York has been one of the most involved in analyzing digital currencies, their risks, benefits, and potential means to regulate them. Spearheading the initiative has been a vibrant financial community of existing and former Wall St type professional promoting the use of bitcoins. On the regulatory side, Benjamin Lawsky, Superintendent of the NY Department of Financial Services (NYDFS) has been proactive in connecting with members of the bitcoin community as well as studying the role of bitcoins and digital currencies in the financial sector. Among initiatives, earlier this year he held a Reddit Ask Me Anything (AMA) to provide his thoughts and learn from bitcoin users.
Following on their work, the NYDFS has today issued initial guidelines for the issuance of “BitLicenses” to virtual currency firms. The proposed regulatory framework covers which firms will need a license and requirements from license holders. The NYDFS is providing a 45 day notice for public comments on the proposal before taking the next step of putting the guidelines to law.
Some of the key points
Who it’s for: Licenses are required from firms involved with holding, securing, and transmitting virtual currencies on behalf of other or offering exchange services. Also included are issuers of virtual currencies. Online stores only receiving them as payment though are exempt of requiring licenses.
Client Safety: License holders will be required to hold virtual currencies of the same type and amount which they own for customers. Also, firms will need to “also maintain a bond or trust account in United States dollars for the benefit of its customers in such form and amount as is acceptable to DFS for the protection of the licensee’s customers.”
Anti-Money Laundering (AML): Similar to other financial firms, BitLicense holders will be required to conform with reporting practices that include properly knowing their customers (KYC), issuing receipts of transactions, and monitor transactions for suspicious behavior.
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Misc: Other requirements are for firms to designate methods to handle cyber-security, compliance, and accounting.
Reacting to the proposals from the NYDFS, firms have been encouraging of the initiatives, as it overall the BitLicenses provide them with regulatory approval to operate legally in New York. In addition, it will allow them to cultivate relationships with financial counterparties that have been reluctant to engage in bitcoin businesses until the formation of regulation.
Commenting to Digital Currency Magnates about the importance of BitLicenses for their business, Jaron Lukasiewicz, CEO of New York based Coinsetter stated that “The BitLicense is a fundamentally important element to our company’s success. Obtaining regulatory licensing in New York will enable us to offer US banking to our customers and create additional assurances that their funds are safe.” In terms of the overall impact on the bitcoin industry, Lukasiewicz added “Bitcoin will cause dramatic changes to the financial services industry globally. Bitcoin-related regulations will help increase the speed at which this change takes place.”
Among other firms, itBit;s CEO Charles Cascarilla provided comment in the company’s blog today about the NYDFS BitLicense. In anticipation of bitcoin regulation taking place in the US, itBit recently moved its headquarters from Singapore to New York. In his comments, Cascarilla stated that “We applaud the thoughtful and transparent approach that Benjamin Lawsky and the NY DFS have taken in examining consumer protection issues surrounding virtual currency and related businesses. We believe this framework is important for the ecosystem to operate in a compliant and trustworthy way, and shows the DFS’ ongoing dedication to improving the stability of the industry.”