The New York Department of Financial Services (NYDFS) has officially rejected granting its BitLicense to Bittrex Inc., a Seattle-based cryptocurrency exchange that lets users swap nearly 200 digital assets.
The decision comes only 24 hours after the state regulator approved the application of its rival Bitstamp, making it one of a handful of firms to receive the license that allows cryptocurrency businesses to operate in New York.
To receive a BitLicense license, a provider must fulfill various reporting requirements and comply with standards on anti-money laundering, cybersecurity, and consumer protection. However, the DFS said Bittrex’s application was unable to satisfy these requirements due to deficiencies in the exchange’s capital and anti-money laundering requirements.
The regulator also cited deficiencies in Bittrex’s BSA/AML/OFAC compliance program, as well as due diligence and control over its token and product launches. It added that the crypto exchange failed to “demonstrate that it will conduct its business honestly, fairly, equitably, carefully, and efficiently.”
The BitLicense was first proposed in 2014 but has been frequently criticized as a regulatory framework due to its impractical requirements and policies. New York is the only state that requires firms dealing in digital assets to obtain a license to operate. The Empire State has established strong state-based regulation, but the crypto community has widely accused the approach for being one of the strictest laws governing this type of business.
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Bittrex fully disputes the findings
“Bittrex is saddened and disappointed in today’s decision by the New York Department of Financial Services (NYDFS), which we believe harms rather than protects New York customers. Bittrex fully disputes the findings of the NYDFS in today’s decision. We have worked diligently with NYDFS to address their questions and meet their requirements since first applying for our BitLicense in August of 2015,” the exchange commented on the NYDFS decision.
Interestingly, the exchange said it challenged DFS’ attempts to apply traditional bank-centric regulatory rules to the entirely different model of its business. This included, according to its official statement, requiring Bittrex to obtain NYDFS approval before it can establish or acquire any other entity.
Bittrex also noted that the NY watchdog presented an agreement that if the exchange agreed to, would allow it to win both the Bitcoin and money transmission licenses. But the exchange refused to sign this agreement after it assessed that NYDFS’ terms would hurt its business in other states and countries.
Bittrex applied for the license and underwent necessary procedures to obtain it, even as the cost of BitLicense went past hundreds of thousands of dollars for legal and compliance fees.
Until then, Bittrex has operated under a “safe harbor” provision that allows BitLicense registrants to operate in the state while their NYDFS applications are pending. During this period, the applicant startup should still be required to follow security practices, while complying with regulations put forth by the financial crimes enforcement authority.
Bittrex, which has more than 1.6 million customers globally and approximately 35,000 in New York, is now required to cease operating in the state within 60 days.