Benjamin M. Lawsky, Superintendent of Financial Services for New York, has issued a public order calling for proposals and applications for establishing regulated “virtual currency exchanges” in the state. The order can be viewed here.
The apparently rapid pace of progress is in line with Lawsky’s dedicated attention to the matter since the initial inquiry was launched last August. Thus far in 2014, he held the virtual currency hearings, a highly successful reddit AMA and numerous other correspondence on the topic.
In an update, the NYDFS said the following on its site:
“Firms may immediately submit formal proposals and applications to operate virtual currency exchanges in order to help expedite the process of putting in place greater oversight for this industry. Such proposals and applications represent the formal commencement of a regulatory process, and may be modified by the firm through discussions with NYDFS to help ensure that they include robust consumer, cyber security, and anti-money laundering protections.”
The update goes on to describe how the public order is the next phase in developing regulation, which could ultimately see the advent of a “BitLicense” as a future step.
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The update though does beg a few questions. Exchanges are singled out. Is there anything planned for businesses- or even individuals- dealing with Bitcoin in some other way (e.g. payment processing, mining services)? Or are regulators confined to a similar box to France, which only regulates entities dealing in virtual currency with fiat? If so, the extent of regulation would be quite trivial.
Also, are companies required to apply at this point? If not, what motivation do they have for doing so, especially if they don’t know what they’re signing up to?
Finally, it’s unclear how and why submitting applications for virtual exchanges should drive regulation, especially if it’s subject to modification. What would be the outcome if nobody applies?
Lawsky was quoted as saying that exchanges should make appropriate disclosures to potential clientele about the risks associated with trading in virtual currencies. This practice is followed by regulated online Forex and CFD players who make such warnings front and center.
“Consumers should understand and receive appropriate disclosures about the potential risks associated with using virtual currencies or any other financial product, but the fact is that virtual currencies are unlikely to disappear entirely. They will likely continue to exist in one form or another. As such, turning a blind eye and failing to put in place guardrails for virtual currency firms while consumers use that product is simply not a tenable strategy for regulators. Our overarching goal is to balance creating appropriate regulatory protections without stifling beneficial innovation in the development of new payments platforms.”