Today’s New York State Register includes a Notice of Proposed Rule Making from the New York State Department of Financial Services (the “NYSDFS”) regarding the regulation of virtual currency (“Regulation of the Conduct of Virtual Currency Businesses,” No. DFS-29-14-00015-P). The proposed rule calls for the creation of the “bitlicense” which the NYSDFS has hinted at in the past. New York is the first state to actually propose such a licensing requirement for virtual currency businesses.
The Notice, which refers to the full text of the proposed rule made available by NYSDFS a few days earlier, marks the beginning of a 45-day window for public comment on the proposed rule.
The proposed rule appears to be drafted to carefully exclude merchants and bitcoin miners from the scope of the licensing requirement, but includes exchanges, digital wallet services, merchant service providers and others in the virtual currency ecosystem. It imposes many of the same types of requirements that we already have in the area of money transmission and clearing house services, including capital requirements, anti-money laundering safeguards, and “know your customer” type issues. It also includes requirements with respect to business continuity and cyber security issues.
All entities involved in or planning on being involved in virtual currency-related businesses should study this proposed rule carefully. There is still an opportunity to voice concerns and have the final rule reflect any issues that the NYSDFS views as important. It is likely that whatever is enacted in New York will be used as a model in other states that wish to enact a similar virtual currency licensing structure.