NYDFS Issues Public Order On Virtual Currency Exchanges

In light of the demonstrated need for stronger oversight of virtual currency firms and other recent developments, Benjamin M. Lawsky, Superintendent of Financial Services, today issued a public order that the New York State Department of Financial Services (NYDFS) will consider formal proposals and applications in connection with the establishment of regulated virtual currency exchanges operating in New York.

Superintendent Lawsky said: "The recent problems at Mt. Gox and other firms further demonstrate the urgent need for stronger oversight of virtual currency exchanges, including robust standards for consumer protection, cyber security, and anti-money laundering compliance. We will continue to proceed swiftly and thoughtfully to provide rules of the road for reputable virtual currency firms seeking to conduct business on-shore in a responsible manner."

Firms may immediately submit formal proposals and applications to operate virtual currency exchanges in order to help expedite the process of putting in place greater oversight for this industry. Such proposals and applications represent the formal commencement of a regulatory process, and may be modified by the firm through discussions with NYDFS to help ensure that they include robust consumer, cyber security, and anti-money laundering protections.

Approved applications will ultimately be required to adhere to the proposed regulatory framework NYDFS puts forward for virtual currency firms operating in New York. NYDFS is also providing notice today that it intends to propose that regulatory framework no later than the end of the second quarter of 2014. Given that proposals and applications for virtual currency exchanges often take time for firms to develop, today's public order clarifies that NYDFS will consider such proposals and applications.

Today's public order is the next phase in NYDFS's public inquiry into the appropriate regulatory guardrails for virtual currency firms. NYDFS is continuing to work on regulations – including a specially tailored "BitLicense" – for virtual currency firms operating in New York. NYDFS is also expected in the near future to consider proposals and applications for other types of virtual currency firms beyond exchanges.

Superintendent Lawsky said: "Consumers should understand and receive appropriate disclosures about the potential risks associated with using virtual currencies or any other financial product, but the fact is that virtual currencies are unlikely to disappear entirely. They will likely continue to exist in one form or another. As such, turning a blind eye and failing to put in place guardrails for virtual currency firms while consumers use that product is simply not a tenable strategy for regulators. Our overarching goal is to balance creating appropriate regulatory protections without stifling beneficial innovation in the development of new payments platforms."

To view a copy of the public order, please visit, link.

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