New York considers “BitLicenses” to regulate virtual currencies

On November 14, the New York State Department of Financial Services (NYDFS) announced that it will hold a public hearing on virtual currency regulation soon (date to be determined) in New York City. The goal of regulation is to provide greater security when it comes to its use, while allowing this form of electronic commerce to grow.

Virtual currencies — of which Bitcoin is just one type — can serve legitimate business purposes and  increasingly is gaining popularity in both the consumer and investor worlds.

Serious security concerns regarding their often anonymous use remain, though. Such currencies have helped to support money laundering, bribery, gun running, and child pornography. In fact, on August 12, when the NYDFS first announced it was launching an inquiry into possibly regulating virtual currency, Forbes magazine published an interview with an alleged key figure in the black market drug website “Silk Road” who called Bitcoin a key ingredient in the site’s illegal efforts.

The upcoming public hearing in New York City will be part of an ongoing fact-finding effort to help determine NYDFS’s possible next steps in establishing regulatory guidelines for virtual currencies. Money transmissions are regulated by NYDFS already, but the department understands that guidelines might need to be tailored to the unique characteristics of this type of electronic commerce.

The list of issues that the NYDFS is considering with regard to potential issuances of BitLicenses include:

• What specific types of virtual currency transactions and activities should require a BitLicense?

• Should entities that are issued a BitLicense be required to follow specifically tailored anti-money laundering guidelines?

• Should entities that are issued a BitLicense be required to follow specifically tailored consumer protection guidelines?

• Should entities that are issues a BitLicense be required to follow specifically tailored regulatory examination requirements?

The NYDFS noted it would be working with the virtual currency industry as its inquiry proceeds.

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Julie DiMauro is the executive editor of FCPA Blog. She can be reached here.