Alert August 20, 2013

New York Department of Financial Services Seeks to Regulate Virtual Currency

After reportedly issuing subpoenas to several companies affiliated with bitcoins, the New York Department of Financial Services announced it was determining whether to regulate bitcoins and other virtual currencies. According to DFS, regulation of virtual currency will lend legitimacy and stability to the fledgling industry, and suggests establishing “safety and soundness requirements” so that funds entrusted to virtual currency companies “will not get stuck in a digital black hole.” DFS also warned that penalties could result from facilitating criminal activity, and argues that, like “any other industry, greater transparency and accountability [are] critical to promoting sustained, long-term investment.” The notice of inquiry seeks comment and information on whether virtual currencies are more appropriately regulated through augmenting existing money transmission regulations, or issuing entirely new, industry-specific regulatory guidelines.