New York Financial Services Dept. issues rules for BitLicenses

In a departing letter, New York’s financial services superintendent Benjamin Lawsky issued a final word on BitLicenses, or crypto-currency permits, for the state of New York.

“How exactly does someone go about banning computer code? The answer, of course, is that you cannot,” said Lawsky in his letter, admitting that of course the regulatory agency could not ignore the ongoing financial transactions taking place on the Web through Bitcoin and other crypto-currencies. The rules revealed today were two years in the making.

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The new ruling states that companies providing virtual currency services will have to apply for a special license. The law is mainly aimed at instituting consumer protections and anti-money laundering provisions. Virtual currency companies have had a difficult time working with the NYDFS because of its insistence on applying antiquated rules to a modern system, something that Lawsky acknowledges in his letter.

“Attempting to force novel technologies and business models into existing regulatory boxes — simply because ‘that is the way it has always been done’ — may not be a sensible approach. We need, at times, to be more creative than that as regulators — even if it takes us outside our comfort zone,” he wrote.

New York’s BitLicenses are the first step any state has taken to institute real regulation of virtual currency, and it will be an evolving project. Meanwhile, both Texas and California are considering implementing BitLicenses, and the U.S. Internal Revenue Service has already created tax reporting guidelines for virtual currency businesses.

New York’s scheme will likely provide a template for those interested in more strictly regulating virtual currency-related financial businesses going forward.