New York regulator issues final virtual currency rules

By June 3, 2015Bitcoin Business
Click here to view original web page at www.reuters.com

NEW YORK New York state issued on Wednesday its final rules for companies that operate in virtual currencies such as bitcoin, doing little to accommodate complaints that overly tight regulation could hamper a nascent industry.

Benjamin Lawsky, superintendent of financial services for the state of New York, said the new digital currency rules known as the "BitLicense" will focus on overseeing financial intermediaries only.

"There is a basic bargain that when a financial company is entrusted with safeguarding customer funds and receives a license from the state to do so – it accepts the need for heightened regulatory scrutiny to help ensure that a consumer’s money does not just disappear into a black hole," Lawsky said at the BITS Emerging Payments Forum in Washington.

The new rules would not apply to software developers, individual users, customer loyalty programs, gift cards, currency miners, or merchants accepting it as payment.

Digital currency companies would not need prior approval from the state for updates on their software, only for material changes such as a wallet firm offering exchange services.

"We have no interest in micro-managing minor app updates. We're not Apple," said Lawsky.

Industry participants have feared BitLicenses will hamper start-ups and require too many approvals as businesses grow.

The "BitLicense" plan is the first set of rules by a state to create guidelines specifically for virtual currencies. It includes rules on consumer protection, the prevention of money laundering, and cybersecurity.

Lawsky, meanwhile, has come under fire from the bitcoin community for issuing the rules shortly after announcing he was leaving the agency to set up his own consulting company on digital currencies.

The most prominent virtual currency now is bitcoin, often used as an investment or to pay for goods and services online.

Bitcoin prices have been steady of late, trading at $225.77 on the BitStamp platform on Wednesday. It rose as high as $1,123 in December 2013.

The rules met resistance from industry participants who claim they will stifle innovation, while others hope the regulation will help legitimize bitcoin.

"There are going to be gray areas," said New York attorney Reuben Grinberg, who specializes in virtual currency. "I think what you're going to see over the next year or two are requests for clarification. Hopefully the department will react quickly and publicly so the industry can see who's required to be licensed and who doesn't need to be."

(Reporting by Gertrude Chavez-Dreyfuss and Karen Freifeld; Editing by Chizu Nomiyama)

Benjamin Lawsky, superintendent of financial services for the state of New York, said the new digital currency rules known as the "BitLicense" will focus on overseeing financial intermediaries only.

"There is a basic bargain that when a financial company is entrusted […]

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