Helping Clients Navigate Through BitLicense Requirements and Challenges
Any person engaging in “virtual currency business activity” involving New York or its residents must obtain a a BitLicense. Pursuant to the rules promulgated by the New York Department of Financial Services (DFS), “virtual currency business activity” includes any one of the following:
(1) receiving virtual currency for transmission or transmitting virtual currency, except where the transaction is undertaken for non-financial purposes and does not involve the transfer of more than a nominal amount;
(2) storing, holding, or maintaining custody or control of virtual currency on behalf of others;
(3) buying and selling virtual currency as a customer business;
(4) performing exchange services as a customer business; or
(5) controlling, administering or issuing a virtual currency.
The term “virtual currency” is construed broadly, means “any type of digital unit that is used as a medium of exchange or a form of digitally stored value,” whether centralized or decentralized, and is synonymous to what is commonly referred to as “cryptocurrency” or “digital currency”. However, mere development and distribution of software does not require a BitLicense.
Thus, transmitting or even holding digital currency may require obtaining and maintaining a NY Bitlicense, which may become an extensive and cumbersome procedure. Even though DFS is obligated to process a BitLicense application within 90 days after the filing is complete, this period may be extended in DFS’ discretion and include requests for additional information. DFS may also grant conditional BitLicenses in its discretion.
In a modernization effort, DFS now allows companies applying for, updating or maintaining BitLicenses to submit most of the documents online – utilizing the Nationwide Multistate Licensing System and Registry (NMLS). A company is not required to provide redundant information if it is applying for both NY BitLicense and Money Transmitter License.
Still, obtaining a BitLicense is a serious undertaking that will involve costs and resources related to the application and ongoing compliance, including minimal capital requirements, surety bond or trust account and full reserves.
Guiding Clients Through NY BitLicense Application Process
Our lawyers advise and guide clients throughout the BitLicense application process, which requires clients’ cooperation in providing the detailed information about the company, its owners, officers, business plan and operations to DFS for the most efficient processing, including:
- Information about directors, principal officers, principal stockholders and principal beneficiaries;
- Formation documents and good standing certificate;
- Organizational chart;
- Surety bond;
- Description of the proposed, current, and historical business of the applicant;
- Description of products and fee schedule;
- Explanation of the methodology used to calculate the value of virtual currency in fiat currency;
- Specimen form of all agreements, documents, receipts and disclosures that the applicant plans to issue or use with NY customers;
- Copies of any other agreements the applicant has entered into (or will enter into) in connection with the virtual currency business activity;
- Flow of funds structure;
- Corporate and personal financial statements;
- Affidavits and questionnaires;
- AML procedures, cybersecurity programs and other company staffing and internal policies;
- Background investigation reports;
A company with an existing BitLicense will be subject to an ongoing reporting and should also consult with a legal counsel when it adds a new product, service or activity to its business or in the case of a change in control because a material change in the business or ownership may require a written approval from DFS.
Resources for Obtaining NY BitLicense:
- NMLS NY Virtual Currency Business Activity License New Application Checklist
- NYS DFS BitLicense Regulatory Framework
- NYS DFS Final Rules for Virtual Currency Business Activity
- NYS DFS Information and Resources for Money Transmitters