Superintendent
gold wow buy of the New York Department of Financial Services Ben Lawsky revealed a
draft proposal on Thursday of regulations governing virtual currencies
likeBitcoin, making New York the first state in the country to grapple
directly and openly with the issue. If passed, they would be the first
regulations on virtual currencies anywhere in North America to carry the
full weight of the law.The rules say that anyone conducting currency business activity needs to have a BitLicense. That sort of activity includes things like buying
and selling virtual currency as a customer business, storing virtual
currency on behalf of others, or issuing a virtual currency. Merchants
and customers who use virtual currencies exclusively for the
transactions of goods and services, however, are exempt.If you want to start a virtual currency exchange or operate an online wallet service in the state of New York, you going to need a
BitLicense, but if you just want to buy or sell a pizza with virtual
money, it still possible to do so without first getting government
approval.Applying for a BitLicense involves disclosing personal and financial information for top company officials, undergoing a background check,
paying a fee, and providing details about the structure and business
goals of the company. If the regulators see any shady behavior, licenses
can be either suspended or revoked entirely following a hearing.The proposal also introduces capital requirements, which are rules that nearly all financial institutions are required to follow requiring
them to have a certain amount of cash (or other assets) on hand to
ensure that a market downturn or bad business decision doesn suddenly
sink the whole company and its customers' investments with it. The
minimum amount of capital each virtual currency financial firm will be
required to carry will be determined by regulators on a case by case
basis.In addition, all firms applying for BitLicenses will be required to comply with a set of policies including the preservation of all
financial records for at least a decade, the submission of quarterly
financial statements, the verification of customers' real world
identities, and the logging all user transactions which are designed to
combat fraud and money laundering, as well as rules designed to ensure
against data breaches and protect customers privacy.Interesting, the rules appear to technically prohibit virtual currency firms from taking the revenue they earn from virtual currencies
and then investing that money back into virtual currencies. Earnings
can only be sunk into investment grade permissible investments
denominated in United States dollars. This is a category that includes
investment vehicles like money market funds, state or municipal bonds,
and government securities. Notably absent from this list: virtual
currencies like Bitcoin.One of the most appealing aspects of virtual currencies like Bitcoin for many early adopters was that they could be traded in relatively
anonymity. However, as regulators around the globe have worked to
incorporate virtual currencies into the traditional financial system,
there's been a push for companies operating in the virtual currency
space to collect the same type of information about their clients as is
required for those operating with government backed money.Even in New York, under these regulations that people will still be able to transfer bitcoins back and forth without revealing their real
names,. But if they want to utilize the services of an online wallet
service, a degree of anonymity will have to sacrificedThe regulations cover any type of digital unit that is used as a medium of exchange or a form of digitally stored value or that is
incorporated into payment system technology," but exclude digital units
used solely for online gaming.In developing this regulatory framework, we have sought to strike an appropriate balance that helps protect consumers and root out illegal
activity without stifling beneficial innovation," Lawsky said in a
Thursday morningpostonReddit'sr/bitcoin forum. These regulations include
provisions to help safeguard customer assets, protect against cyber
hacking, and prevent the abuse of virtual currencies for illegal
activity, such as money laundering. has become a fixture on Reddit,
hosting awell regarded AMAon the social news site in February of this
year.We recognize that not everyone in the virtual currency community will be pleased about the prospect of a new regulatory framework," he added.
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. (We
think the situation at Mt. Gox, for example, made that very clear.)
Moreover, given that states have specific regulatory responsibilities in
this area, we also have a legal obligation to move forward on this
framework."Marco Santori, chair of the Regulatory Affairs Committee at the Bitcoin Foundation, told the Daily Dot that he appreciated the sincere
effort Lawsky's office is making to accommodate virtual currencies.First and foremost, New York is giving us an opportunity as an industry that the federal government never really gave us," he
explained. They want to engage in a dialog, that's not something that
FinCen or the IRS [federal agencies that have also issued guidelines on
virtual currencies] never did they just put out their opinions without
first getting feedback. New York, on the other hand, seems very serious
about about becoming a hub for virtual currencies."However, Santori did have some reservations about the actual substance of the regulations.He argued that these rules impose heavier regulations on businesses that work in the world of virtual currencies than are placed on firms
dealing in traditional ones. Santori said the new rules would, for
example, sweep in the producers of software allowing people to manage
their own bitcoins, while not holding other people's money which is
typically considered the line separating regular businesses from the
type of money transmitters subjected to harsher governmental scrutiny.
It would be like holdingMicrosoftresponsible for the content of a
manifesto I wrote in Microsoft Word."The draft regulations will be formally published in the New York State Register on July 23, after which there will be a 45 day window
when the public can comment. Regulators will then review the comments,
make any changes they deem necessary, and then finalize them. Santori
said that the Bitcoin Foundation will be actively engaging in that
commenting period and beleives New York officials will be receptive to
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