HORROR: NY State Financial Regulator Announces Final Bitcoin License Regs

Earlier today, outgoing New York Superintendent of Financial Services Benjamin Lawsky released sweeping new rules for licensing digital-currency businesses in the state.

The rules will require providers of digital-currency services operating in New York State—in particular, those with custody of customers’ funds and which exchange virtual currencies for dollars and other fiat currencies—to apply for a specially tailored Department of Financial Services license.

To maintain the license, prospective operators must fulfill various reporting requirements and comply with rules on consumer protection, anti-money-laundering, capital adequacy, changes of ownership and cybersecurity.

WSJ reports, Jerry Brito, executive director of Washington think tank the Coin Center, said that at even taking into account the exemption from duplicating FinCEN and DFS reporting, the rules still “create an unprecedented new state-level money laundering requirement. And it’s discriminatory because banks don’t have to do this in New York State and money transmitters don’t have to do this in New York State.”

John Collins, head of policy and government affairs at bitcoin consumer-services and exchange operator Coinbase, echoed those concerns, calling it “troubling that this nascent industry is being subjected to more onerous regulations than those typically applied to legacy financial institutions.”

Among the requirements in the new regulations for registered Bitcoin exchange dealers:

record for each transaction, the amount, date, and precise time of the transaction, any payment instructions, the total amount of fees and charges received and paid to, by, or on behalf of the Licensee, and the names,account numbers, and physical addresses of (i) the party or parties to the transaction that are customers or accountholders of the Licensee
---
Each Licensee shall provide the Department, upon request, immediate access to all facilities, books, records, documents, or other information maintained by the Licensee or its Affiliates, wherever located.
---

The anti-money laundering program shall, at a minimum:
(1) provide for a system of internal controls, policies, and procedures designed to ensure ongoing compliance with all applicable anti-money laundering laws, rules, and regulations;
(2) provide for independent testing for compliance with, and the effectiveness of, the anti-money laundering program to be conducted by qualified internal personnel of the Licensee, who are not responsible forthe design, installation, maintenance, or operation of the anti-money laundering program, or the policies andprocedures that guide its operation, or a qualified external party, at least annually, the findings of which shall be summarized in a written report submitted to the superintendent;
(3) designate a qualified individual or individuals in compliance responsible for coordinating and
monitoring day-to-day compliance with the anti-money laundering program; and
(4) provide ongoing training for appropriate personnel to ensure they have a fulsome understanding of
anti-money laundering requirements and to enable them to identify transactions required to be reported and maintain records required to be kept in accordance with this
---
Monitoring for suspicious activity. Each Licensee shall monitor for transactions that might signify money laundering, tax evasion, or other illegal or criminal activity
---

Each Licensee shall file Suspicious Activity Reports (“SARs”) in accordance with applicable federal laws, rules, and regulations.
(ii) Each Licensee that is not subject to suspicious activity reporting requirements under federal law shall file with the superintendent, in a form prescribed by the superintendent, reports of transactions that indicate a possible violation of law or regulation within 30 days from the detection of the facts that constitute a need for filing. Continuing suspicious activity shall be reviewed on an ongoing basis and a suspicious activity report shall be filed within 120 days of the last filing describing continuing activity.
(f) No Licensee shall structure transactions, or assist in the structuring of transactions, to evade reporting requirements under this Part.
(g) No Licensee shall engage in, facilitate, or knowingly allow the transfer or transmission of Virtual Currency when such action will obfuscate or conceal the identity of an individual customer or counterparty.
---
Each Licensee shall also maintain, as part of its anti-money laundering program, a customer identification program.
(1) Identification and verification of account holders. When opening an account for, or establishing a service relationship with, a customer, each Licensee must, at a minimum, verify the customer’s identity, to the extent reasonable and practicable, maintain records of the information used to verify such identity, including name, physical address, and other identifying information, and check customers against the Specially Designated Nationals (“SDNs”) list maintained by the Office of Foreign Asset Control (“OFAC”), a part of the U.S. Treasury Department. Enhanced due diligence may be required based on additional factors, such as for high risk customers, high-volume accounts, or accounts on which a suspicious activity report has been filed.

No doubt most other states will now adopt similar regulations, now that Big Sista has weighed in.

Bottom line: It will become extremely dangerous to exchange for Bitcoins in a manner that is not recorded. At the time  an exchange is made  through licensed dealers, the recording of the transaction will take place and those the Bitcoins will be fully trackable.

Much more trackable than cash.

 -RW