By Emily Flitter and Karen Freifeld
NEW YORK Jan 28 New York's top bank regulator
on Tuesday revealed new plans to regulate businesses handling
transactions in bitcoin this year, saying the state may issue
new financial services licenses tailored to virtual currencies.
Benjamin Lawsky, New York's financial services
superintendent, raised his idea for a "BitLicense" in a hearing
a day after a prominent bitcoin entrepreneur was arrested on
money laundering charges.
"The first job is to get rid of money laundering," said
Lawsky, speaking to panelists at the hearing whose panelists
included the investor twins Cameron and Tyler Winklevoss and the
venture capitalist Fred Wilson.
Officials from New York's Department of Financial Services
asked panelists how they could best imagine businesses handling
bitcoins meeting regulatory requirements equivalent to those
directing other financial firms to combat money laundering and
keep track of customer activity.
While bitcoin experts testifying in the hearings said they
agreed with the need for regulation, they warned an overly
arduous system could stifle innovation and push startup
companies and bitcoin transaction activity offshore.
The dialogue exposed a core conflict in the relationship
between regulators and bitcoin enthusiasts. When it was first
created in 2009, the digital currency, which is not controlled
by any company or central bank, appealed mostly to a group of
tech specialists, many of whom harbored strong mistrust in
governments and were looking to escape government control.
The investors at Tuesday's hearing acknowledged activity in
the bitcoin community has shifted away from this sentiment and
said they wanted regulators to step in with rules for bitcoin
businesses to follow. But, they said, too much regulation would
damage bitcoin's growth.
"I sympathize with Jamie Dimon," Wilson said at one
emotional moment during the hearing, which he later described as
"He runs an overregulated business," Wilson said of Dimon,
chief executive of JPMorgan Chase & Co, which paid nearly $20
billion over the past year to resolve various regulatory and
"I'm not sure I share all the sympathy," Lawsky said, adding
he believed that the terrorist attacks of Sept. 11, 2001 would
have been more difficult to carry out if better anti-money
laundering laws for financial firms had been in place.
An effort similar to New York's to regulate virtual
currencies is underway in California, according to a source
familiar with a series of private meetings between bitcoin
business leaders and state officials.
PROMINENT ADVOCATE RESIGNS
In another sign of the bitcoin community's push to appear
more responsible, the Bitcoin Foundation, an advocacy group,
said one of its officials, Charlie Shrem, had resigned. The
announcement came a day after U.S. prosecutors charged Shrem
with conspiring to commit money laundering.
According to prosecutors, Shrem conspired to sell more than
$1 million in bitcoins to users of Silk Road, an illicit online
drugs bazaar that authorities shuttered last year. Shrem was CEO
of BitInstant, a bitcoin exchange company that closed last
Lawsky said Shrem's arrest cast a cloud over the industry,
but that virtual currencies could benefit the financial system.
"It could force the traditional payments community to 'up
its game' in terms of the speed, affordability and reliability
of financial transactions," Lawsky said.
Lawsky said that while he wanted to set up clear rules, he
also wanted to preserve flexibility, given the constantly
evolving nature of the technology.
"That is, in part, why we're evaluating whether our agency
should issue a so-called 'BitLicense' specifically tailored to
virtual currencies," he said.