NYDFS Rejects Application of Digital Asset Exchange Bittrex, Inc. for Virtual Currency License | Practical Law

NYDFS Rejects Application of Digital Asset Exchange Bittrex, Inc. for Virtual Currency License | Practical Law

The New York Department of Financial Services (NYDFS) issued a letter rejecting an application by Bittrex, Inc. for licenses to engage in virtual currency business activity and money transaction activity (BitLicense).

NYDFS Rejects Application of Digital Asset Exchange Bittrex, Inc. for Virtual Currency License

by Practical Law Finance
Published on 15 Apr 2019USA (National/Federal)
The New York Department of Financial Services (NYDFS) issued a letter rejecting an application by Bittrex, Inc. for licenses to engage in virtual currency business activity and money transaction activity (BitLicense).
On April 10, 2019, the New York Department of Financial Services (NYDFS) issued a letter rejecting an application by Bittrex, Inc., a US-based digital asset exchange, for licenses to engage in:
  • Virtual currency business activity under Part 200 of Title 23 of the New York Codes, Rules and Regulation (NYCRR).
  • Money transaction activity under Article 13-B of New York Banking Law.
Bittrex has been engaged in virtual currency business activity under a safe harbor granted by NYDFS while its application for a BitLicense was pending. Effective April 11, 2019, Bittrex was ordered to immediately cease operations within New York State, and within 14 days of receipt of its rejection letter:
  • Provide a written confirmation to NYDFS that it has ceased operations in New York.
  • Provide a plan for how it will wind down its business with existing New York customers within 60 days of receipt of the rejection letter.
In the letter, NYDFS states that it denied Bittrex's applications due to its failure to demonstrate that it will "conduct its business honestly, fairly, equitably, carefully and efficiently" under applicable New York law. Specifically, NYDFS found deficiencies in:
  • Bittrex's Bank Secrecy Act (BSA), anti-money laundering (AML), and Office of Foreign Assets Control (OFAC) compliance programs. NYDFS assessed Bittrex's compliance programs and found that they failed to meet the requirements necessary to prevent illegal money laundering and the evasion of economic sanctions due to:
    • lack of adequate internal policies, procedures and controls;
    • lack of qualification or effectiveness of the compliance officer;
    • lack of adequate training of employees;
    • inadequate independent testing of compliance programs; and
    • inadequate customer due diligence.
  • Bittrex's ability to meet the capital requirements of NYDFS.
  • Due diligence in launching tokens or products. Although Bittrex has guidelines = for review and launch of tokens and products on its exchange, a sample review demonstrated an inability to comply with the policy guidelines.