The term ‘BitLicense’ has officially entered into the lexicon of virtual currency terminology. The New York State Department of Financial Services (NYDFS) is considering issuing such a framework in order to regulate distributed electronic money such as bitcoin.
The department, which is planning on holding an upcoming hearing regarding virtual currencies at an as-yet-unspecified date, expects to bring up the possibility of licensing the business of virtual currency money transmission. In August, it subpoenaed 22 bitcoin-related companies requesting information about the way in which they operate.
“Our public hearing will review the interconnection between money transmission regulations and virtual currencies,” a document released by NYDFS titled ‘Notice of Intent to Hold Hearing on Virtual Currencies’, dated November 14, 2013, 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.”
The department is in a state where a large number of financial transactions occur since it in the jurisdiction of the US banking epicenter of New York City. Its location could, as a result, make it one of the leading regulatory bodies that may surface as a result of the booming value of bitcoin’s price.
“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,” the letter states.
One of the biggest draws for illegal activity, the black marketplace Silk Road, was shut down in early October. Yet alternatives have still operated, and a new Silk Road has also surfaced, creating a whack-a-mole type scenario regarding illicit exchanges for authorities to deal with.
“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.
In addition to the booming price of bitcoin, a number of scams and cases of fraud have cropped up in the past few weeks, clearly drawing the attention of law enforcement and regulators.
“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.”
“I think we should applaud the intention to develop specifically-tailored requirements for digital currency businesses, but we should be skeptical given New York’s scattershot, undiscriminating approach to its recent subpoena campaign,” said Marco Santori, Chairman of the Bitcoin Foundation’s Regulatory Affairs Committee.
The timing of the hearing is still opaque, but the regulatory body is making it clear there will be serious talks regarding virtual currencies in the near future.
“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.”