New York regulator moving ahead on bitcoin regulation

By February 11, 2014Bitcoin Business
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New York regulator moving ahead on bitcoin regulation

NEW YORK (Reuters) - New York's financial regulator on Tuesday revealed new details on his agency's plans to govern virtual currency firms in the state in order to protect consumers and combat money laundering.

Benjamin Lawsky, superintendent of New York's Department of Financial Services, expects to adopt enhanced consumer disclosure rules, capital requirements and a framework for permissible investments with consumer money.

Lawsky has said he plans to issue a "BitLicense" for businesses that use the new currencies, and he intends to provide regulations this year, which could make New York the first U.S. state to regulate virtual currencies such as bitcoins.

In a speech in Washington on Tuesday, Lawsky said consumers need to know that virtual currency transactions are generally irreversible, and that they could lose their principal if they hold onto bitcoins for an extended period.

Lawsky said more challenging questions include what capital requirements firms must have on balance sheets to absorb unexpected losses, and how many risks they can take with investments using consumer money. One issue is whether the firms should be allowed to invest in virtual currencies.

"Our objective is to provide appropriate guard rails to protect consumers and root out money laundering - without stifling beneficial innovation," Lawsky said in prepared remarks for an event at the New America Foundation.

His agency is still wrestling with whether to ban or restrict the use of "tumblers", which obscure the record and source of virtual currencies. He said tumblers are a concern to law enforcement, but that they might have legitimate uses.

He said most virtual currencies have public ledgers which, when combined with know-your-customer guidelines, could serve as anti-money laundering controls.

Lawsky added that he is grappling with what types of firms and transactions to regulate.

The remarks follow two days of hearings in New York on the potential regulation of virtual currencies. Witnesses at the late January hearings included state and federal prosecutors, as well as industry participants such as the investor twins Cameron and Tyler Winklevoss.

Lawsky said the hearings, which were streamed on the agency's website, were watched by more than 14,000 people from 117 countries.

He spoke on Tuesday at an event hosted by "Future Tense," a partnership between Slate magazine, the New America Foundation and Arizona State University to explore emerging technologies.

(Reporting By Karen Freifeld. Editing by Andre Grenon)

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