In an official statement made last Tuesday, the financial authorities of New York said that they would soon begin accepting applications for virtual currency exchanges. These would include those dealing in Bitcoins. This is a consequence of regulator's growing interest in the technology. It was Benjamin M. Lawsky, the city's Superintendent of Financial Services who issued the public order.
Need for stronger oversight
In the light of the demonstrated need for stronger oversight of virtual currency firms, 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."
This stronger oversight will be made through a proposed regulatory framework which the city of New York plans to enact for virtual currency firms operating in the state. Estimated time of arrival for this framework would be no later by the end of June. The city wants to act swiftly given that proposals and applications for virtual currency exchanges often take time for firms to develop.
Firms are allowed to 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. These proposals and applications represent the formal commencement of the regulatory process. They can be modified by the firm through discussions with the authorities to help ensure that they include strong consumer, cyber security and anti-money laundering protections.
Not just exchanges
New York's interest in virtual currencies isn't new. The city recently held hearings on the proposed regulatory framework. Financial regulators in the state have been investigating the use of Bitcoin and other virtual currencies since last year. This continuous work culminates in a specially tailored "BitLicense", given out to virtual currency firms operating in New York. The city is also expected to consider proposals and applications for other types of virtual currency firms beyond exchanges.
The cry for regulation comes following the fall of Tokyo-based Mt. Gox. This exchange was the previously largest place for buying and selling Bitcoins. Mismanagement and a supposed hacking attack made the exchange file for bankruptcy, leaving thousands of people in the cold.
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. 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."
The Bitcoin Foundation, a nonprofit which advocates for the use of Bitcoin, did not immediately respond to comment on New York's announcement.