Digital currency exchanges may soon file formal proposals and applications to operate under regulations set by the New York State Department of Financial Services.
The NYDFS issued a public order today stating that it would accept applications from virtual currency exchanges that want to operate in the state.
"The recent problems at Mt. Gox," a failed Bitcoin exchange now seeking bankruptcy protection, "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," says Benjamin Lawsky, superintendent of the NYDFS, in a March 11 press release. "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."
Exchanges that apply will be expediting the process of regulating the virtual currency market, Lawsky says in the release. He has been fervent in planning for technology-specific regulations that control fraud but do not stifle innovation.
Coinsetter, a digital currency exchange for professional traders that's still in beta testing, will be applying with the NYDFS, says Jaron Lukasiewicz, founder and CEO.
"We have worked hard over the past year to understand the broader responsibilities that will be required of us in order to operate inside the U.S.," Lukasiewicz says in an interview. "Our company will now work with our legal counsel and the [NYDFS] to tailor our platform to their specific compliance requirements, and we are excited to move forward in a regulated manner."
Jesse Powell, CEO of Payward Ltd., which runs the Kraken digital currency exchange, also plans to apply. "Very likely, we and everyone else in the space will be sending something in," he says in an interview.
But before doing so, Payward will reach out to "open a dialogue with the NYDFS and get a better sense of what the proposal should look like and what they'd like to see beyond the initial proposal in some sort of review/audit process," Powell says.
Lawsky suggested there would be an open dialogue between his office and the virtual currency companies, and that the applications could be modified as the department finalizes its state regulatory framework, or "BitLicense," for those businesses.
The department will soon consider applications by digital currency companies other than exchanges, and has decided to propose a framework for all companies "no later than the end of the second quarter of 2014."
According to the NYDFS, "approved applications will ultimately be required to adhere to the proposed regulatory framework NYDFS puts forward for virtual currency firms operating in New York."