New York entrepreneurs in the virtual currency space must be careful to follow New York’s licensing requirements enacted under Financial Services Law Sections 102, 104, 201, 206, 301, 302, 309, and 408. Under the new regulations issued by the New York State Department of Financial Services, a business that engages in “Virtual Currency Business Activity” must be licensed by the New York State Department of Financial Services. A business is engaged in Virtual Currency Business Activity if it:
- receives virtual currency for transmissions or transmits virtual currency;
- stores, holds, or maintains custody or control of virtual currency on behalf of others;
- buys and sells virtual currency;
- exchanges or converts something of value, into virtual currencies; or
- controls, administers, or issues a virtual currency.
However, businesses chartered under New York Banking Law and “approved by the superintendent to engage in Virtual Currency Business Activity,” as well as “merchants and consumers” that use virtual currencies for investment purposes or to buy and sell goods or services are exempt from the licensing requirement.
The license application fee to register as a business engaged in Virtual Currency Business Activity is $5,000.00 and is nonrefundable. The application must include:
- the exact name of the applicant, including any doing business as name;
- a list of all of the applicant’s affiliates and an organization chart illustrating the relationship among the applicant and such affiliates;
- a list of, and detailed biographical information for, each individual applicant and each director, principal officer, principal stockholder, and principal beneficiary of the applicant;
- a background report prepared by an independent investigatory agency for each individual applicant, and each principal officer, principal stockholder, and principal beneficiary of the applicant, as applicable;
- for each individual applicant; for each principal officer, principal stockholder, and principal beneficiary of the applicant, as applicable; and for all individuals to be employed by the applicant who have access to any customer funds, whether denominated in fiat currency or virtual currency: (i) a set of completed fingerprints, or a receipt indicating the vendor (which vendor must be acceptable to the superintendent) at which, and the date when, the fingerprints were taken, for submission to the State Division of Criminal Justice Services and the Federal Bureau of Investigation; (ii) if applicable, such processing fees as prescribed by the superintendent; and (iii) two portrait-style photographs of the individuals measuring not more than two inches by two inches;
- an organization chart of the applicant and its management structure;
- a current financial statement for the applicant and each principal officer, principal stockholder, and principal beneficiary of the applicant, as applicable, and a projected balance sheet and income statement for the following year of the applicant’s operation;
- a description of the proposed, current, and historical business of the applicant;
- details of all banking arrangements;
- all written policies and procedures required by, or related to, the requirements of this part;
- an affidavit describing any pending or threatened administrative, civil, or criminal action, litigation, or proceeding before any governmental agency, court, or arbitration tribunal against the applicant or any of its directors, principal officers, principal stockholders, and principal beneficiaries, as applicable;
- verification from the New York State Department of Taxation and Finance that the applicant is compliant with all New York State tax obligations in a form acceptable to the superintendent;
- if applicable, a copy of any insurance policies maintained for the benefit of the applicant, its directors or officers, or its customers; and
- an explanation of the methodology used to calculate the value of virtual currency in fiat currency; and
Businesses operating in the virtual currency space, that are not exempt from these new regulations, must ensure that they comply with these new licensing requirements. Businesses interested in pursuing a New York virtual currency license should consult with legal counsel.