Skip the navigation
News

New York's proposed Bitcoin rules include consumer protections

The state would require virtual currency traders to monitor transactions for money laundering

By Grant Gross
July 17, 2014 03:20 PM ET

IDG News Service - Companies trading in Bitcoin and other virtual currencies would be required to hold enough of the currencies to cover their debts to customers and would have to verify the identities of account holders as a protection against money laundering, under new regulations proposed by the New York State Department of Financial Services (DFS).

The proposed rules, announced Thursday, would also require virtual currency traders to develop customer complaint procedures, to adopt cybersecurity policies and to submit to examinations by the DFS in exchange for a so-called BitLicense to trade in virtual currencies.

DFS has conducted an 11-month inquiry into Bitcoin regulation, with the department's interest starting just months after trading problems surfaced at Mt. Gox, a large Japanese Bitcoin-trading service. Law enforcement officials have also raised concerns that the anonymity of Bitcoin owners could open the door to easier money-laundering schemes.

"We have sought to strike an appropriate balance that helps protect consumers and root out illegal activity -- without stifling beneficial innovation," DFS Superintendent Benjamin Lawsky said in a statement. "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."

New York would be the first state to issue virtual currency regulations. DFS plans to publish the proposed regulations next Wednesday. Their publication will start a 45-day public comment period. DFS will also publish the proposed rules on Reddit, the content-sharing site with a large community of virtual currency users.

New York would require BitLicenses for businesses that receive or transmit virtual currency on behalf of consumers, or store or control virtual currency for customers. DFS would also require a license for businesses that convert virtual currencies to other currency, or that buy or sell virtual currency as a business model.

The licenses will not be required for merchants or consumers that receive virtual currencies as payment for goods or services, DFS said.

Under the proposed rules, DFS would require virtual currency licensees to provide detailed receipts to customers, and would require them to monitor transactions for money laundering and report suspected activity to the department.

Some Bitcoin sellers applauded the proposed New York rules. The regulations will be used as a model policy for "almost every state in the country," said Jaron Lukasiewicz, CEO at Bitcoin trading firm Coinsetter. The regulations will help protect consumers, he said.

"It's comforting to see that the proposed regulations take a common sense approach to the industry and are in line with our technology's capabilities," Lukasiewicz added by email.

The rules are a "thoughtful framework for Bitcoin regulation," added Barry Silbert, founder of SecondMarket, an online marketplace for selling Bitcoin and other assets. The rules "will help promote further adoption of digital currencies by both consumers and investors alike," he added by email.

Reprinted with permission from IDG.net. Story copyright 2014 International Data Group. All rights reserved.
Our Commenting Policies
Blog Spotlight
Jonny Evans

Apple and Visa are ready to turn your iPhone into your wallet, after years of steady work to develop such services.

Sharky
Sharky