New York Proposes BitLicense Regulations for Virtual Currency Businesses

On July 17, 2014, the New York Department of Financial Services (“DFS”) issued for public comment a proposed BitLicense regulatory framework (the “BitLicense Framework”) for certain virtual currency businesses in New York. The BitLicense proposal, which is the product of a year-long inquiry by DFS, represents the first comprehensive state regulatory proposal to address virtual currency businesses. The BitLicense Framework applies DFS’s requirements for money transmitters to virtual currency business activities with particular adaptations and expansions of some of the requirements. Under the BitLicense Framework, individuals and firms must obtain a license before engaging in “virtual currency business activity” as defined by DFS. Upon license approval, each licensee must comply with specified requirements, including the maintenance of sufficient capital, consumer protection obligations, and reporting and recordkeeping requirements. In addition, each licensee must establish a cyber security program and anti money laundering policies and procedures reasonably designed to comply with the BitLicense Framework and all applicable federal and state laws. The alert memo provides further detail on the background, scope, and requirements of the BitLicense Framework.