BitLicense is a license and regulatory framework established by the New York Department of Financial Services (NYDFS) in 2015 to oversee and regulate virtual currency businesses operating in the state of New York. It was the first comprehensive legal structure in the United States aimed specifically at cryptocurrency-related businesses.
This article details everything you need to know about BitLicense, from what it is to the type of businesses that need to apply for the license, and the step-by-step process for claiming it. Keep in mind that a BitLicense is compulsory for any crypto business to be operational in the state of New York.
What is BitLicense?
BitLicense is a regulatory framework issued by the New York State Department of Financial Services (NYDFS) to conduct regulatory oversight on cryptocurrency businesses operating in New York. Until 2019, it was the only license or registration available for cryptocurrency trading platforms and brokers in the US, with the rules applying to both NY resident persons and entities, and to those outside the state conducting crypto-related businesses with persons in the state.
The license covers a wide range of activities, including businesses involved in transmitting, buying, selling, or storing cryptocurrencies, and those offering crypto custody and exchange services. State-chartered banks are exempt from the rules if they have previously received the appropriate permission from the NYDFS to engage in crypto-related activities. Also exempted are persons simply making or receiving payments in cryptocurrencies, participants of customer affinity programs that award tokens, and software providers that do not handle or hold cryptocurrencies for customers.
Coinbase, Bitflyer, Circle, Ripple, Paxos, Xapo, Square, BitPay, Coinsource, Robinhood, Moon, LibertyX, and Bitstamp are some of the prominent crypto companies holding the BitLicense. Gemini and ItBit are New York State-chartered trust companies exempt from regulation and have received special authorization from the NYDFS to operate per their trust charters.
Who Needs a BitLicense?
BitLicense should be obtained by any individual or business entity that intends to engage in virtual currency-related activity in New York State. This includes:
- Businesses transmitting or receiving cryptocurrencies on behalf of others
- Entities that store, hold, or maintain custody of crypto assets and control their issuance and supply
- Businesses involved in the buying and selling of cryptocurrencies
- Providing cryptocurrency exchange services as a business
- Controlling, administering, or issuing a virtual currency
Exemptions to the ruling include:
- Merchants and consumers who use virtual currencies solely for buying or selling goods or services, or for personal investment.
- Software developers who do not directly handle cryptocurrencies.
What are the BitLicense Requirements?
BitLicense aims to protect consumers, ensure transparency, and bring legitimacy to the cryptocurrency industry in New York. Requirements for a BitLicense involve adhering to several key compliance areas as mandated by the New York Department of Financial Services (NYDFS), including:
Capital Requirements
BitLicense applicants must meet the capital requirements determined by the NYDFS. There is no fixed minimum capital, instead, companies are assessed based on factors such as their financial position, transaction volume, total liabilities, anticipated activity, and liquidity levels.
Compliance Obligations
Businesses planning to apply for the license must implement and follow robust anti-money laundering (AML) policies, preventing illicit activities. They must also establish cybersecurity programs to protect their systems and customer data, adopt best business practices, and maintain all transaction data.
Digital Asset Custody
Applicants must have secure custody solutions for storing and safeguarding customer assets. Employing a cold wallet or similar storage mechanisms to prevent unauthorized access is recommended.
Marketing and Advertising
All promotional campaigns conducted by applicants must comply with New York State laws and should provide clear, accurate, and non-misleading information to potential customers.
How To Apply for a BitLicense In New York?
BitLicense application is a multi-step process requiring careful preparation and attention to ensure compliance with the New York government’s regulatory requirements. The following is a step-by-step guide to the process:
Register on the Nationwide Multistate Licensing System (NMLS)
As the first step, applicants need to create an account for their business on the Nationwide Multistate Licensing System (NMLS) website and assign a primary and a secondary account administrator to oversee the application and submission of required documentation. These administrators are responsible for handling communication, document submission, and system access throughout the process.
Review the BitLicense Application Checklist
Visit the NYDFS and NMLS websites and access the Virtual Currency Business Activity License New Application Checklist, which is a list outlining every document and detail required for crypto business applications under the BitLicense.Carefully review and gather all the necessary information and documents before proceeding.
Prepare Application Documents
Applicants must keep the necessary documents, including financial statements, organizational charts, and compliance forms, ready. Provide adequate details about the company’s structure and operations. A non-refundable application fee of $5,000 will be charged.
Submit a Full Application
Ensure all the documents listed in the BitLicense checklist are included and meet the standards established by NYDFS. Upload the files using the NMLS portal under the appropriate category.
Respond to Additional Requests
To ensure that everything is smooth, applicants are recommended to respond quickly as the NYDFS may request additional documents or further clarity during the review process. Staying proactive helps avoid necessary delays.
Also Read: What Is Bitcoin Dominance, And How Does It Influence The Crypto Market?
Final Thoughts
The BitLicense is an important cryptocurrency regulation in the state of New York, aimed at fostering a secure and transparent environment for virtual currencies. While the process of obtaining the license may seem complex and expensive, it provides individuals and businesses interested in providing crypto-related services with the necessary compliance and regulatory protection to operate in a highly volatile financial market.
It is crucial for crypto businesses planning to operate in New York to understand the provisions of the BitLicense. Consulting legal experts in the state can help navigate the application process, ensuring adherence to all legal requirements. The license allows businesses to establish trust among their customers and solidify their presence in one of the most influential financial markets in the world.