The New York Department of Financial Services has announced it will hold hearings in the coming months to discuss regulating Bitcoin.
Among the topics they’ll discuss is whether to begin issuing what they’re calling “BitLicenses” to businesses deemed in compliance with a possibly new set of financial statutes created solely for digital currencies like Bitcoin.
“Our public hearing will review the interconnection between money transmission regulations and virtual currencies,” the release states.
“Additionally, the hearing is also expected to consider the possibility and feasibility of NYDFS issuing a ‘BitLicense’ specific to virtual currency transactions and activities, which would include anti-money laundering and consumer protection requirements for licensed entities.”
Much of the popularity of Bitcoin seems to hinge on its status as an unregulated, decentralized unit of transaction, and we’ve previously discussed the paradox of how the mainstreaming of Bitcoin could actually cause its value to decline.
As Bloomberg View’s Timothy Lavin wrote, “Almost all the advantages Bitcoin has — it’s cheap, somewhat convenient, anonymous, free from centralized authority — derive from the fact that governments haven’t taken it very seriously.”
Many Bitcoin proponents dismiss that argument, however, noting that even if demand slips in Western countries, there remains a healthy interest abroad, especially in countries where the government sets exchange rates. Indeed, a surge in Chinese Bitcoin users seem to have driven much of the recent climb in value.
In August, representatives from Bitcoin firms met with officials in Washington to answer questions about the cryptocurrency, which can now be used to purchase virtually anything on the web.
Bitcoin’s value has climbed more than 70% in the past month to about $430 on the Mt. Gox exchange.
Here’s the NYDFS full release:
In August 2013, the New York State Department of Financial Services (NYDFS) issued a public notice that it has launched an inquiry into the appropriate regulatory guidelines for virtual currencies. In that notice, we wrote that it is important for regulators to balance both allowing new technologies and industries to flourish, while also working to ensure that consumers and our country’s national security remain protected.
NYDFS launched its inquiry in part because of evidence that the cloak of anonymity provided by virtual currencies has helped support dangerous criminal activity, such as drug smuggling, money laundering, gun running, and child pornography. Indeed, the same week that NYDFS issued its public notice, a national magazine published an interview with an alleged key figure in the black market drug website “Silk Road,” who cited the virtual currency Bitcoin as a key ingredient in the site’s efforts to commit illegal acts. Law enforcement authorities have subsequently taken action in the Silk Road case.
Virtual currencies may have a number of legitimate commercial purposes, including the facilitation of financial transactions. That said, NYDFS also believes that it is in the long-term interest of the virtual currency industry to put in place appropriate guardrails that protect consumers, root out illegal activity, and safeguard our national security. Failing to do so would not only threaten the virtual currency industry as a legitimate business enterprise, but could also potentially expose virtual currency firms to extraordinarily serious criminal penalties.
As the next step in our inquiry, we are providing notice that NYDFS intends to hold a public hearing on virtual currency regulation in New York City in the coming months at a time and location to be determined. We will announce logistical details for the hearing in the near future.
This upcoming public hearing is part of an ongoing fact-finding effort informing NYDFS’s determination regarding the appropriate regulatory guidelines for virtual currencies. As part of its August 2013 notice, NYDFS stated that it was concerned that certain virtual currency firms may be engaging in money transmission, which is an activity that is licensed and regulated by our Department. However, we also said that we were considering whether to issue new regulatory guidelines tailored specifically to the unique characteristics of virtual currencies.
Our public hearing will review the interconnection between money transmission regulations and virtual currencies. Additionally, the hearing is also expected to consider the possibility and feasibility of NYDFS issuing a ‘BitLicense’ specific to virtual currency transactions and activities, which would include anti-money laundering and consumer protection requirements for licensed entities. Among the issues related to the potential issuance of a BitLicense that we are considering include but are not limited to the following:
What specific types of virtual currency transactions and activities should require a BitLicense?
Should entities that are issued a BitLicense be required to follow specifically tailored anti-money laundering guidelines?
Should entities that are issued a BitLicense be required to follow specifically tailored consumer protection guidelines?
Should entities that are issued a BitLicense be required to follow specifically tailored regulatory examination requirements?
To be clear, NYDFS has not made a determination at this point about the necessary regulatory guidelines for virtual currencies. Our Department is currently engaged in a broad-based inquiry on virtual currency. The virtual currency industry represents a new frontier in electronic commerce, and it is important that regulators obtain the necessary information – through a rigorous, deliberate fact-finding effort – to set appropriate guardrails for this industry.
Indeed, it is not clear at this point whether virtual currencies will become a long-term, prevalent fixtures of the electronic commerce world. But given the increased demand from consumers and investors, as well as demonstrated concerns regarding money laundering, regulators would be remiss if they turned a blind eye to virtual currencies. We have a responsibility to take a hard look at these issues.
We look forward to continuing to work with the virtual currency industry as our inquiry proceeds.