Bitcoin Rules Completed by New York Regulator

By June 3, 2015Bitcoin Business
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Benjamin M. Lawsky is the New York State financial services superintendent. Credit Ozier Muhammad/The New York Times

With just weeks to go before he steps down, Benjamin M. Lawsky, New York’s top financial regulator, on Wednesday released rules for running a Bitcoin business in the state.

In a speech at the BITS Emerging Payments Forum in Washington, Mr. Lawsky announced the final set of rules that govern virtual-currency businesses, concluding a nearly two-year effort to regulate the growing Bitcoin industry.

Mr. Lawsky said that the final form of the so-called BitLicense would put in place crucial guidelines for protecting consumers and preventing money laundering.

“We are excited about the potential digital currency holds for helping drive long-overdue changes in our ossified payments system,” he said. “We simply want to make sure that we put in place guardrails that protect consumers and root out illicit activity, without stifling beneficial innovation.”

The new rules are among the last initiatives Mr. Lawsky will put in place before he leaves government later this month to start his own legal and consulting firm. In his four-year tenure, he has fashioned a name for himself as a tough overseer of the banking and insurance industries, cracking down on the likes of Deutsche Bank and Standard Chartered.

Such has been his reputation that The Village Voice once depicted him on its cover with a cowboy hat and sheriff’s badge, calling him “Johnny Lawsky.”

His push to create rules governing virtual currencies may be among the most sweeping to date. New York is the first state to do so, seeking to create a replacement for money transmission guidelines that, Mr. Lawsky said, date back to the Civil War.

Bitcoin and other virtual currencies have grown in popularity both in the global technology community and on Wall Street. The Nasdaq OMX Group and the New York Stock Exchange have announced initiatives tied to Bitcoin. And last month, Goldman Sachs invested in Circle, a start-up that aims to use the technology underlying Bitcoin to improve consumer payments.

Among the requirements outlined in the new regulations are the presence of a compliance officer and the maintenance of capital reserves determined by the New York State Department of Financial Services.

Throughout the process, some Bitcoin advocates have questioned whether Mr. Lawsky was overstepping his boundaries and proposing regulations that could throttle the nascent technology. Critics on the Internet site Reddit satirized the regulator by depicting him atop the Iron Throne from the HBO series “Game of Thrones” with the caption “Hail King Lawsky.”

In his speech on Wednesday, Mr. Lawksy said that the main goal had been to provide useful guidelines for virtual currency businesses rather than stifle the emerging technology altogether. The BitLicense, he said, applies only to financial operations and not to software developers, individual users or retailers who accept Bitcoin payments.

“Financial regulators and policy makers need to recognize that when it comes to digital currencies and other new payments technology, the genie is already out of the bottle,” he said.

Mr. Lawsky added that regulators and proponents of Bitcoin and other virtual currencies needed to work together to make sure that new technologies continue to flourish while protecting consumers.

Still, some within the virtual currency industry took a dim view of the new rules. Coin Center, a nonprofit advocacy group, took issue with anti-money-laundering provisions of the final guidelines, which it contended were too vague.

“It’s a mixed bag, is the best that can be said about the BitLicense,” Jerry Brito, Coin Center’s executive director, said in a statement. “Other states are already looking to the BitLicense as a model for their own frameworks. We are working with them to ensure they do not repeat the mistakes made here.”

In a speech at the BITS Emerging Payments Forum in Washington, Mr. Lawsky announced the final set of rules that govern virtual-currency businesses, concluding a nearly two-year effort […]

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