Any business essentially buying, selling, or processing bitcoins will have to maintain records of their customers’ names and addresses, and compare the data with the U.S. Treasury’s list of criminal persons or entities, known as “Specially Designated Nationals”.
This is the biggest change to the bitcoin ecosystem under the first set of state regulations aimed at bitcoin businesses announced by the New York Department of Financial Services on Thursday. The proposed rules provide consumer protections and anti-money laundering safeguards.
The rules don’t apply to businesses that take bitcoins or the consumers who trade the cryptocurrency. They target virtual currency exchanges and a range of heavily-funded startups that help mainstream businesses adopt bitcoin payments.
New York’s DFS released a draft of its regulatory framework after months of hearings, public input and social media build-up engineered by bitcoin-friendly Benjamin Lawsky, the superintendent of the New York DFS.
“We have sought to strike an appropriate balance that helps protect consumers and root out illegal activity –
without stifling beneficial innovation,” Lawsky said. “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
Probably the biggest change is that anyone using a New York-sanctioned bitcoin or cryptocurrency service will
no longer be anonymous. Anonymity was a big selling point to the earliest bitcoin enthusiasts and still a
significant part of the virtual currency’s appeal. However, this feature also tends to draw criminal elements into the virtual currency realm, New York and federal regulators have said.
Assuming the draft rules are adopted as regulation, any business offering virtual-currency services would be required to file an application for a license to do business in New York, also referred to as a “BitLicense”.
The proposed New York regulations would require of licensed companies:
- a background check of all employees and founders with fingerprints submitted to state authorities and the FBI;
- a bond or trust account in U.S. dollars to protect customers;
- internal controls against money laundering including customer identification;
- notifications within 24 hours of aggregate individual transactions valued at $10,000 or more;
- written approval of all new business activities or offerings;
- a security program;
- quarterly financial statements;
- the retention of 10 years of business transaction records.
Each bitcoin firm “must establish and maintain written policies and procedures to resolve consumer complaints in a fair and timely manner,” the New York DFS said. “The company must also provide notice to consumers, in a clear and conspicuous manner, that consumers can bring complaints to DFS’s attention for further review and investigation.”