New York State Prepares to Regulate Bitcoin By: Brenda Hamilton, Attorney
The New York State Department of Financial Services (NYDFS) has stated that it will consider proposals for a regulated virtual currency exchange to better protect consumers and prevent money-laundering.
Cryptocurrencies like Bitcoin continue to grow in popularity, yet they are not governed by any financial regulator.
The collapse of Mt. Gox, one of the largest Bitcoin exchanges, and the ongoing prosecutions of individuals involved in the Silk Road criminal enterprise have increased concerns about the Bitcoin market, which is unregulated in the United States and many other countries worldwide.
Benjamin Lawsky, New York’s superintendent of financial services, stated, “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… Consumers should understand and receive appropriate disclosures about the potential risks associated with using virtual currencies or any other financial product.”
The lack of any regulatory control or oversight of Bitcoin has triggered concerns about cybersecurity, financial fraud, tax evasion and money laundering activity. Last year, the Securities and Exchange Commission (“SEC”) issued an investor alert warning the public about potential scams involving virtual currencies, and a few months ago the Financial Industry Regulatory Authority (“FINRA”) did the same.
Applications and proposals can now be submitted to the NYDFS to manage virtual currency exchanges in New York. Additionally, the NYDFS has indicated it will likely consider regulation of Bitcoin miners and businesses that solve complicated mathematical problems that allow them to create new Bitcoin.
Because of numerous financial frauds and security concerns associated with Bitcoin, regulation is increasing. The largest Bitcoin operator in New York, Mt. Gox, filed for bankruptcy after criminals stole $400 million in Bitcoin. Flexcoin, a Canada-based bitcoin bank, closed its doors due to the loss of $600,000 in Bitcoins after its systems were hacked.
New York’s move to get a grip on bitcoin transactions is only one of many similar efforts. The U.S. Treasury Department has already stated that it will collect information about Bitcoin businesses and users, and recently warned exchangers and administrators that they may face sanctions if they fail to register with FinCEN, an agency under Treasury that deals with money laundering and other illicit uses of the financial system.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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Brenda Hamilton, Securities Attorney
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