Updated: June 30, 2021
Over the last two years, the big crypto craze has the public buzzing about how to get involved in the crypto space. You’ve deciphered the differences between crypto-this and virtual-that, and read anything and everything crypto-related.
You’re ready to form an entity with some clever name, and you’ve got investors keen on investing along with a team of engineers primed to get the platform going. But wait… you might be missing a step or two, like getting a license or reporting to a regulator.
While regulators on the federal level are still figuring out who should govern virtual currencies, some states have guidelines and regulations already in place for the crypto industry. Specifically, in New York, the Department of Financial Services requires all businesses to obtain a BitLicense before engaging in any virtual currency business activity.
New York law defines virtual currency business activity as “the conduct of any one of the following types of activities involving New York or a New York resident:
Let’s say you have a business in New York where investors can buy and sell virtual currencies through your savvy platform. Your business would be required to have a BitLicense. The license requirement also applies to businesses that are launching their own virtual currency or those seasoned enough to issue Initial Coin Offerings (ICO).
New York law mandates out-of-state businesses to apply for a BitLicense if such businesses engage in any virtual currency business activity involving New York State, or involving those who reside or have a place of business in New York. For example, if your business is located in Connecticut but is involved in storing virtual currencies like Bitcoin for a New York resident, you would have to apply for a BitLicense.
Startup companies, however, may not necessarily meet the initial BitLicense requirements. After a comprehensive evaluation by the Department of Financial Services, startups engaged in virtual currency business activity can be granted a two-year conditional BitLicense that will allow startups to conduct virtual currency business.
The money transmitter license requirement applies to businesses that involve money transmitting, such as wire transfers. In January 2019, Robinhood, a popular app for trading stocks and virtual currencies, was the most recent application for both a BitLicense and money transmitter license, to be approved by the Department of Financial Services.
But not everyone is required to apply for such licenses. There are two exceptions to the BitLicense requirement – (1) those who are chartered under the New York Banking Law and are approved by the Department of Financial Services to engage in virtual currency activity; and (2) merchants and consumers using virtual currency to purchase goods or for investment purposes.
Bear in mind, New York’s requirements are more stringent than other states, and likely more expensive too, because some states have no requirement for licenses to engage in virtual currency business. Not only should business owners comply with state regulations, but also be mindful that virtual currency businesses can still be subject to federal regulations, including FinCEN, SEC and CFTC.
If you are creating a crypto business, contact Romano Law today!