WASHINGTON – New York state’s chief financial regulator has issued final rules for companies dealing in bitcoin, adding more oversight to the virtual currency that has widened in popularity and moved into the commercial mainstream.
Benjamin Lawsky outlined the third and final version of the rules in remarks Wednesday at a financial industry conference in Washington.
Lawsky’s agency has worked for two years on rules requiring businesses to obtain a special license if they use bitcoin or other digital currencies and to comply with know-your-customer guidelines to prevent money laundering.
The final rules take into account concerns expressed by the virtual currency industry, Lawsky said. They apply only to firms that hold customers’ funds and not bitcoin software developers.
The rules apply only to businesses operating within New York state. They can have customers from all over the U.S., except from states that object to it, Lawsky said. He said his office has been talking to officials in other states about their concerns.
“We are excited about the potential that digital currency holds for helping drive long-overdue changes in our ossified payments system,” Lawsky said. “We simply want to make sure that we put in place guardrails that protect consumers and root out illicit activity — without stifling beneficial innovation.”
He cited protections against cyber hacking and money laundering.
Bitcoin, the virtual currency that can be used to buy and sell some goods and services without government-issued money, is a phenomenon that has moved in recent years beyond its origins as an oddity embraced by a cadre of libertarians and computer geeks. Bitcoin and other virtual currencies have been gaining the backing of investors and mainstream businesses, including major online retailers.
Bitcoin also allows people to conduct transactions anonymously, making it difficult to regulate. The digital currency is created by computers that are used to run complex algorithmic formulas.
In commerce, users exchange cash for digital money using online exchanges, then store it in a wallet program in their computer. The program can transfer payments directly to a merchant who accepts the currency or to private parties anywhere in the world, eliminating transaction fees and the need to provide bank or credit card information.
Also under the new rules, bitcoin companies won’t need prior approval from the regulators for standard updates to software or apps, as opposed to significant changes to their products or business models. “We’re not Apple,” said Lawsky. Companies also won’t need prior approval for each new round of capital fundraising.
Lawsky last month granted the first license to a bitcoin exchange, allowing it to open legally to customers around the U.S. The exchange, called itBit, received a banking charter. His agency also licensed the Square payments firm.
Wednesday’s speech was Lawsky’s final one as New York’s superintendent of financial services. After four years in the post regulating Wall Street banks and the financial industry, he’s leaving this month to start a consulting firm.