US Regulatory Proposals In Place – BitLicense Is Coming To Town.

The US is taking tentative steps towards regulation and regulatory strikes  toward digital currency businesses in the form of a BitLicense. This “licence” will be mandatory for anyone who is starting up a crypto business .

This latest move in the regulatory direction comes from Benjamin M. Lawsky, Superintendent of Financial Services. He announced today that the New York State Department of Financial Services (DFS) has issued for public comment a proposed “BitLicense” regulatory framework for New York virtual currency businesses.

Now what does this “Bitlicense” actually do? Mr Lawsky tells us that:

“We have sought to strike an appropriate balance that helps protect consumers and at the same time root out illegal activity. This needed to be done without stifling beneficial innovation. 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….

As the first state to put forward specially tailored rules for virtual currency firms, we want continued public feedback will be an important part of finalizing this regulatory framework. We look forward to carefully and thoughtfully reviewing public comments on our proposal.””99

So let’s take a look at the “proposed rules”. Who needs a “Bitlicense”?

1.       Receiving or transmitting virtual currency on behalf of consumers.

2.       Securing, storing, or maintaining custody or control of such virtual currency on the behalf of customers.

3.       Performing retail conversion services, including the conversion or exchange of Fiat Currency or other value into Virtual Currency, the conversion or exchange of Virtual Currency into Fiat Currency or other value, or the conversion or exchange of one form of Virtual Currency into another form of Virtual Currency.

4.       Buying and selling Virtual Currency as a customer business (as distinct from personal use).

5.       Controlling, administering, or issuing a Virtual Currency. (Note: This does not refer to virtual currency miners.)

So there you have it. Nearly every sector in the digital currency landscape is mentioned. The question is: How are they going to enforce it? Let’s say Mike, Giovani, Liliana and Mignionette are pooling their BTC together and create a very viable BTC exchange. It’s on the internet. Everything is anonymous. How are they going to police it or even enforce it?

They need to create some kind of division or task force to even think about enforcing this. Even then these posts need to be manned by people that are knowledgeable about digital currency. Seeing that we are a small community and that 80% doesn’t really know how that most digital currency works ( No shame in that) the government will have a hard time enforcing this BitLicense.

Now let’s say that everyone is walking a straight line and are following the suggestions of Lawsky. What does a company need to do?

·         Safeguarding Consumer Assets. Each firm must hold Virtual Currency of the same type and amount as any Virtual Currency owed or obligated to a third party. Companies are also prohibited from selling, transferring, assigning, lending, pledging, or otherwise encumbering assets, including Virtual Currency, it stores on behalf of another person. Each licensee must also maintain a bond or trust account in United States dollars for the benefit of its customers in such form and amount as is acceptable to DFS for the protection of the licensee’s customers.

·         Virtual Currency Receipts.

·         Consumer Complaint Policies.

·         Consumer Disclosures. Companies must provide clear and concise disclosures to consumers about potential risks associated with virtual currencies

·         Anti-money Laundering Compliance. As part of its anti-money laundering compliance program, each firm shall maintain the following information for all transactions involving the payment, receipt, exchange or conversion, purchase, sale, transfer, or transmission of Virtual Currency

·         Verification of Account Holders.

·         Reporting of Suspected Fraud and Illicit Activity. Each Licensee shall monitor for transactions that might signify money laundering, tax evasion, or other illegal or criminal activity and notify the Department, in a manner prescribed by the superintendent, immediately upon detection of such a transactions.

·         Cyber Security Program: Each licensee must maintain a cyber security program designed to perform a set of core functions.

·         Independent DFS Examinations: Examinations of licensees will be conducted whenever the superintendent deems necessary – but no less than once every two calendar years – to determine the licensee’s financial condition, safety and soundness, management policies, and compliance with laws and regulations.

·         Books and Records.

·         Reports and Financial Disclosures, Audit Requirements. Each firm must submit to DFS quarterly financial statements within 45 days following the close of the Licensee’s fiscal quarter.

·         Capital Requirements: Necessary capital requirements will be determined by DFS based on a variety of factors.

·         Business Continuity and Disaster Recovery. Each Licensee shall establish and maintain a written business continuity and disaster recovery plan reasonably designed to ensure the availability and functionality of the Licensee’s services in the event of an emergency or other disruption to the Licensee’s normal business activities.

·         Notification of Emergencies or Disruptions. Each firm must promptly notify DFS of any emergency or other disruption to its operations that may affect its ability to fulfill regulatory obligations or that may have a significant adverse effect on the Licensee, its counterparties, or the market.

·         Transitional Period. Applications for the license will be accepted beginning on the date the proposed regulations become effective. Those already engaged in virtual currency business activity will have a 45-day transitional period to apply for a license from the date regulations become effective. The superintendent will issue or deny the license within 90 days of a complete application submission.

Is this completely useless? No but 99.9999% goes against everything digital currency stands for. Since the government doesn’t have the manpower, the know-how, etc to police or enforce their proposal, this BitLicense not be followed by the majority.

The whole proposal can be read here:

http://www.dfs.ny.gov/about/press2014/pr1407171.html