On April 10th, the New York State Department of Financial Services (NYDFS) denied the BitLicense application of the U.S. cryptocurrency exchange Bittrex, which had initially applied for the state’s crypto license back in 2015. The denial means the platform must shutter its operations in New York within 60 days for now.
The NYDFS, New York’s top financial watchdog, cited concerns regarding Bittrex’s anti-money laundering (AML) capabilities and a lack of compliance diligence in several other areas, like users using fake aliases a la “Elvis Presley,” as reasons for the denial.
The agency notified Bittrex of its decision via a letter to its CEO, Bill Shihara, writing that the exchange hadn’t shown that it could conduct its business in the state an honest manner:
“Based on the Department’s extensive review of the information submitted and the Department’s recent review of Bittrex’s operation, the Department hereby denies the applications due to the applicant’s failure to demonstrate that it will conduct its business honestly, fairly, equitably, carefully and efficiently within the purposes and intent of the provisions of […] New York Banking Law, in a manner commanding the confidence and trust of the community.”
Enacted in the summer of 2014, New York’s BitLicense is used to regulate virtual currency business activities in its jurisdiction. The rejection of Bittrex’s first application means the exchange will have to reapply for a BitLicense in the future if it hopes to return operations to the state. That process could take years accordingly.
Bittrex Responds in Short Order
Bittrex released its own response to the NYDFS’s findings several hours later. In it, the exchange countered what it called “factual inaccuracies” and a general lack of context in the watchdog’s letter.
— Bittrex (@BittrexExchange) April 10, 2019
The exchange said it had implemented AML and KYC controls and that problematic accounts with alias names were few in number on the platform and inactive, i.e. they had never traded assets.
Bittrex went on to say that the NYDFS’s coin restrictions, capital requirements, and operational requests were unnecessarily excessive. The exchange added that it was committed to continuing to grow and build out a fully mature compliance approach:
“We do not challenge that Bittrex is on a journey to improving and maturing our compliance function. Less than 2 years ago, we were a company of only four people. Bittrex is a young, innovative company that believes in the future of blockchain technology. Bittrex will continue to mature its compliance program because we believe in being good corporate citizens, and because we believe in the rule of law. We will continue to work with the many other regulators, and we will continue to take constructive feedback to improve our ability to be the corporate citizens we have set out and committed to be.
On the Other Hand, Bitstamp Gets the Greenlight
A day prior to Bittrex’s BitLicense rejection, top European exchange Bitstamp saw its U.S. subsidiary, Bitstamp USA, receive one of the NYDFS’s coveted crypto licenses.
DFS Grants Virtual Currency License to Bitstamp USA, Inc. https://t.co/1cgwZgHlQL
— NYDFS (@NYDFS) April 9, 2019
The development will allow the exchange’s American wing to start selling bitcoin in New York. Bitstamp USA has also received permission from the state regulator to facilitate fiat transfers using the Ripple Network as a settlement layer. Currencies like the U.S. dollar and the British Pound would be supported from the start.
Bitstamp CEO Nejc Kodrič said the crypto license was a force for transparency in the ecosystem:
“We appreciate New York’s solid regulatory framework – the nation’s first – to protect consumers using cryptocurrencies and look forward to expanding our growing business in the state. Bitstamp has always embraced regulatory efforts that focus on transparency and accountability to help expand the industry and bridge the gap between the traditional financial and cryptocurrency worlds.”
So Bitstamp is in and Bittrex is out, and thus the BitLicense continues to be a source of both celebration and consternation for American crypto enterprises.