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N.Y. proposes the first regulatory system for virtual currency exchanges

July 17, 2014, 6:07 PM UTC
This May 1, 2014 photo taken in Washington, DC shows a bitcoin medal. Bitcoin uses peer-to-peer technology to operate with no central authority or banks; managing transactions and the issuing of bitcoins is carried out collectively by the network. AFP PHOTO / Karen BLEIER (Photo credit should read KAREN BLEIER/AFP/Getty Images)
Photograph by Karen Bleier — AFP/Getty Images

New York’s financial services department has proposed the first regulatory framework for policing virtual currency businesses.

Under the proposed rules, any New York businesses that store or exchange virtual currencies, such as Bitcoin, would first need to obtain a license from the state, Benjamin Lawsky, the state’s financial services superintendent, said Thursday. Lawsky says the so-called “BitLicense” would be meant to protect consumers who deal with virtual currency exchanges without slowing down innovation by those businesses.

“We have sought to strike an appropriate balance that helps protect consumers and root out illegal activity – without stifling beneficial innovation,” 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.”

Licensed virtual currency firms would be required under the proposed rules to hold the same amount of virtual currency that they owe to customers without selling or loaning it out to anyone else.

The proposed guidelines would also mostly eliminate virtual currency users’ ability to remain anonymous, as all licensed businesses will need to maintain and submit records of virtual currency transactions that include all parties’ names and addresses. That particular wrinkle is part of the state’s compliance program meant to stamp out the use of virtual currency for money laundering.

The state, which said earlier this year that it would come out with these guidelines by the end of the year’s second quarter, has submitted the proposal for public comment. The full framework will be published for public view on July 23 and will remain open for comment for 45 days from that point, Lawsky said.