What New York is doing with cryptocurrencies
Decentralization technologies in blockchain and cryptocurrencies were so disruptive to global financial systems that no regulation can stop their explosive influence. Internet-based platforms crossed the walls and borders of regulation with no signs of mitigation to the wonder of fiat users who would not have even thought of experiencing advancements beyond the outdated processes and mechanisms that delineated the world of finance during centuries.
But the authorities and regulators in each country cannot put money governance aside after the limitations of physical cash were finally overcome by the creation of digital cash, virtual money, and cryptocurrencies, all of which generally refer to the same currency. . with a cash equivalent.
With states and countries urgently imposing legislation to control cryptocurrency attack without understanding it, measures ranged from limiting to not honoring it or outright banning it, primarily to protect unsuspecting consumers from becoming potential victims of potential cybercrime.
It was the state of New York that spawned a highly debatable and decidedly regulatory wall called the BitLicense.
It was in 2015 that the New York State Department of Financial Services launched BitLicense, to the dismay of not a few. While it is viewed by regulators as strict measures to tame cryptocurrencies, it was nonetheless viewed by most as an unjustifiable violation of end-user privacy. It was also too punitive for crypto startups who must shell out $ 100,000 just for tedious 30-page request processing. Compliance includes business history, owner and operator profiles, financial records, know-your-customer anti-money laundering programs, anti-fraud policies, and other procedural standards required by the US Treasury Financial Crimes Enforcement Network. USA, or FinCEN.
Fight against cryptography and cybercrime
It has long been a known fact that cryptocurrencies were untraceable vehicles for money laundering, tax evasion, terrorist financing, and other crimes. Law enforcement agencies were unable to track anonymous transactions involving virtual currencies that break protocols across borders with ease. It was against this background that BitLicense was conceptualized as mitigation measures to combat relentless cybercrimes.
It is good to study BitLicense to understand where New York comes from. It can give a good measure of how its provisions can be applied to other states or countries that need a strict framework to protect users. It will also make start-ups aware of how cryptocurrencies, however neutral, can be dangerous to unchecked hands without regulation.
Decentralized platforms can react sharply to any attempt to control it. BitLicense is certainly a compliance regulation that is expensive and demanding enough that only a large, well-funded company can pay. Licensees must have written compliance policies, possess confidential customer data including bank statements, physical addresses, names of transacting parties, which must be available upon request from the NYSDFS. Transaction records must be traced for up to seven years, while any material changes made by the licensee, including M&A transactions, must be reported and can only be acted upon after obtaining consent.
To ensure its financial integrity and ongoing operations, Licensee must maintain a specified amount of its assets based on factors determined by the NYSDFS superintendent. Factors may include Licensee’s total assets and liabilities, the actual and expected volume of Virtual Currency Trading Activity, and the types of products and services being offered.
Custody and protection of clients’ assets
BitLicense requires that the Licensee must maintain a surety bond or trust account in USD to protect the client’s assets with the amount to be determined by the superintendent. When a Licensee holds, stores, or maintains custody of a customer’s virtual currency (VC), the Licensee must match the type and amount he has, while he is prohibited from selling or transferring the VC without the customer’s permission.
Any material changes to existing products and services or the introduction of new products, services and activities should not be carried out without the consent of the superintendent.
Mergers, Acquisitions and Change of Control.
They are not allowed without the approval of the superintendent.
Books and records
It is the Licensee’s duty to make, preserve and preserve all books and records in an original format for a minimum of seven years. And the NYSDFS must have immediate access to all facilities, books, records, documents, and / or other information maintained by Licensee, including its affiliates.
The superintendent has the right to examine the Licensee at least once every two years to ensure the healthy financial condition of the Licensee, sound, safe and sound practices, and compliance with regulations.
Financial reports and disclosures
Licensee must submit quarterly financial statements and audited annual financial statements to the superintendent.
Anti-money laundering program
AML policies must be written and suspicious activities must be monitored, which means money laundering, tax evasion or any other criminal or illegal activity. SARS should be presented when appropriate. The Department must be notified if the transaction totals $ 10,000 USD or more per day by an individual, including crypto-to-crypto transactions. Licensee must also employ KYC, CDD, EDD, OFAC SDN when necessary.
Licensee must establish and maintain an effective security program to protect data integrity, confidentiality, and accessibility. A CISO or Chief Information Security Officer should be appointed to oversee, implement, and enforce such policies with an annual report and subsequent proposals.
Business continuity and disaster recovery
A written business continuity plan (BCP) and disaster recovery plan (DR) must be implemented to ensure availability and functionality in cases of unforeseen disruptive activities with annual testing employed.
Advertising and marketing
All commercial advertisements must include the phrase, “Licensed to engage in virtual currency activities by the New York State Department of Financial Services. Advertising and marketing materials must be kept for a minimum of seven years.
Licensee discloses all risks related to its products, services, and activities, including risks associated with cryptocurrencies in general. Likewise, the general terms and conditions and the terms of transactions must be disclosed, including the provision of receipts each time a transaction is completed, establishing an anti-fraud policy.
Policies and procedures for resolving complaints in a fair and timely manner must be in writing. The policy must include Licensee’s postal address, email address, and telephone number posted online to receive complaints. The same goes for the Departments.
Any BitLicense regulatory text that is deemed invalid for application to a Licensee does not invalidate the entire document.
BitLicense will require a quarterly financial report, an annual audit, and an annual inspection.
BitLicense is a complete batch, but this type of regulation provides clients with comfort, trust, and transparency in the way who serves them. Since cryptocurrencies are here to stay, crypto operators must therefore operate responsibly. With the arrival of more and more institutional investors and increasingly widespread mass adoption, scrutiny regulation must be established for the sake of the operator and the user. www.wallextrust.com
The entry What is a BitLicense? was first published in Bitcoin, Cryptocurrency and Blockchain News.