New York proposes BitLicense regime for virtual currency firms

New York proposes BitLicense regime for virtual currency firms

Summary: New York has published its proposals for how a new framework for Bitcoin companies, putting a lot more red tape around the emerging industry.

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The New York State Department of Financial Services (DFS) has released a first draft of regulations for businesses operating Bitcoin services in the state.

The new 'BitLicense' regulatory framework, published on Thursday, outlines new rules for businesses that trade, store, or provide exchange services for virtual currencies proposed by the state. The framework looks to introduce consumer protections, anti-money laundering compliance, and security rules particular to virtual currency firms.

The framework follows a DFS inquiry into Bitcoin regulation that kicked off last August, as well as a public hearing and efforts by the department to engage the Bitcoin community on a Reddit 'ask me anything' session earlier this year.

The public has been given 45 days to respond to the DFS proposals. While commending the DFS' efforts to date, Bitcoin Foundation global policy counsel Jim Harper said the period is too short, given the subject's breadth and complexity. The foundation has also argued against technology-specific regulation. 

Businesses that will need a license include companies that receive or transmit virtual currency on behalf of consumers; any businesses that stores virtual currencies; companies that provide exchange services; those that buy and sell virtual currencies as a customer business; and anyone who issues or administers a virtual currency.

Those that won't need a license include currency miners, as well as merchants and consumers that use Bitcoin to buy or sell.

Some of the consumer protections that would be introduced by the proposal include rules on how much virtual currency the business holds, properly formatted and detailed receipts of all transactions, consumer complaints policies, and risk disclosures.

BitLicensees will also need to verify the identity of account holders and hold on to detailed customer records of transactions, which runs contrary to some of the anonymity features that Bitcoin users enjoy today. They'll also need to monitor and report suspended fraud and report when a person's transactions for a day exceed $10,000.

Among the standard requirements covering security, such as systems to detect and prevent breaches, businesses will also need to conduct penetration testing at least once a year alongside quarterly vulnerability tests. They'll also need to appoint a chief information security officer.

The regulations would also introduce new capital requirements for businesses, with the exact level determined by the department.

The new license regime of course will also mean that department's superintendent has the authority to suspend or revoke a license, or issue a preliminary injunction to prevent a company from violating existing finance, banking or insurance laws.

If and when the proposal is adopted, existing virtual money businesses will have a 45-day period of grace to apply for a license — and the department will have 90 days to determine whether one should be issued.

Read more on Bitcoin

Topics: Security, Banking, E-Commerce, Government US

Liam Tung

About Liam Tung

Liam Tung is an Australian business technology journalist living a few too many Swedish miles north of Stockholm for his liking. He gained a bachelors degree in economics and arts (cultural studies) at Sydney's Macquarie University, but hacked (without Norse or malicious code for that matter) his way into a career as an enterprise tech, security and telecommunications journalist with ZDNet Australia. These days Liam is a full time freelance technology journalist who writes for several publications.

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5 comments
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  • Nuts

    Licensing Ponzi schemes now?
    Buster Friendly
  • I think it's a mistake

    I think the effort to make cryptocurrencies safe to use to not be worth the effort, and most definitely not NY's job. Much of Bitcoin's popularity is driven by anarcho-capitalist fantasies of a self-regulating, stateless hard currency; so let the experiment play out and we'll all learn something. But let it be well understood that those who trade in Bitcoin do so entirely at their own risk and if they lose their shirts, they'll get no relief outside of bankruptcy court.
    John L. Ries
    • NY's proper job in that regard...

      ...is to guarantee the stability of the financial institutions it chartered; if that means restricting their participation in the Bitcoin trade, then so be it; but that's as far as it should go.
      John L. Ries
  • Um... has the NYDFS ever heard of Dark Wallet?

    Until virtual currencies can be regulated worldwide in a consistent, enforceable way, this idea seems like a fool's errand. For instance, DW will allow bitcoin to be sent to a pseudo-address which doesn't really exist. How do you regulate that? And multi-transactional mixing will allow the history of a transaction on the blockchain to become practically untraceable in just 6 or 7 iterations. All that will be within the existing bitcoin framework, doing nothing special. Finally, DW and the bitcoin blockchain are open source code, so the NSA, etc. could arrest or assassinate the developers and it wouldn't matter-- the code is out there.

    Apparently the dinosaurs didn't see it coming, either.
    ClearCreek
  • There is ALREADY a heavily law'ed currency called money.

    Why is it that every-time anything has human value the governments are on the doorstep or knocking to come in. Can't there be one bloody thing in the world that governments aren't the "MASTER-of-all"? Isn't that the whole motivation behind the bit-coin to begin with.
    tgit23@...