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N.Y. Proposes 'Bit License' for Virtual Currencies

N.Y. Proposes 'Bit License' for Virtual Currencies
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Jul 17, 2014 2:00 PM PDT    Text size: 

NEW YORK — New York state’s top financial regulator today introduced a "bit license" plan, the first proposal by a state to create guidelines specifically for virtual currencies.

Money laundering, cybersecurity and consumer protection are the primary reasons for such a license for virtual currency exchanges and for companies that secure, store or maintain custody or control of the funds on behalf of customers, according to Benjamin Lawsky, the state's superintendent of the Department of Financial Services.

Websites that accept virtual currencies for payment, including the dozens of adult websites that honor them, would not need to apply for a license. But those buying and selling virtual currency as a business would.

While some may view the proposed rules that only apply intrastate as restrictive, others, including Lawsky, see them as important step to legitimize virtual currencies as a durable currency.

"We recognize that not everyone in the virtual currency community will be pleased about the prospect of a new regulatory framework,” Lawsky said in a post on Reddit. "Ultimately, though, we believe that setting up common sense rules of the road is vital to the long-term future of the virtual currency industry, as well as the safety and soundness of customer assets."

Highlights of the proposal include:

  • Existing virtual currency exchanges have 45 days to register with the state and all new businesses requires written approval;
  • All employees will be required to submit to background checks;
  • All virtual currency businesses will be required to post a surety bond;
  • Businesses will need to submit quarterly financial statements within 45 days of the close of every quarter. They also will need to keep records of all business transactions for 10 years;
  • Any retained earnings and profits can only be invested in U.S dollar instruments such as federal and state bonds or money market funds;
  • Businesses must include in all marketing and advertising materials, “Licensed to engage in Virtual Currency Business Activity by the New York State Department of Financial Services” and disclose material risks of dealing with virtual currency;
  • Businesses must comply with existing cybersecurity regulations, including employing a security officer and implementing a security plan;
  • Virtual currency businesses must follow existing anti-money laundering and "know your customer" requirements; and,
  • Contents of virtual currency accounts that are not used within five years must be handed over to the state.

Lawsky has created a public comment page on Reddit over the issue. It is available here.

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