Who needs a New York BitLicense? What counts as virtual currency business activity involving New York or a New York resident?

Question

Accepted Answer

If you do any of the five types of virtual currency business activity involving New York or a New York resident, you need a license from the New York Superintendent of Financial Services unless an exemption applies (23 NYCRR 200.3(a), 200.3(c)). The text is as published current through October 31, 2023.

What the rule says:

- Virtual currency business activity means conducting any one of these activities involving New York or a New York resident (23 NYCRR 200.2(q)):
- Receiving virtual currency for transmission or transmitting it, except where the transaction is for non-financial purposes and does not involve more than a nominal amount of virtual currency (23 NYCRR 200.2(q)(1)).
- Storing, holding, or maintaining custody or control of virtual currency on behalf of others (23 NYCRR 200.2(q)(2)).
- Buying and selling virtual currency as a customer business (23 NYCRR 200.2(q)(3)).
- Performing exchange services as a customer business (23 NYCRR 200.2(q)(4)).
- Controlling, administering, or issuing a virtual currency (23 NYCRR 200.2(q)(5)).
- Transmission means the transfer, by or through a third party, of virtual currency from a person to a person, including from one person's account or storage repository to another's (23 NYCRR 200.2(o)).
- Exchange service means converting or exchanging fiat currency or other value into virtual currency, virtual currency into fiat currency or other value, or one form of virtual currency into another (23 NYCRR 200.2(d)).
- A New York resident is any person that resides, is located, has a place of business, or is conducting business in New York (23 NYCRR 200.2(h)).
- Developing and disseminating software in and of itself is not virtual currency business activity (23 NYCRR 200.2(q)).
- Exempt from licensing: persons chartered under the New York Banking Law and approved by the superintendent to engage in virtual currency business activity, and merchants and consumers that use virtual currency solely to buy or sell goods or services or for investment purposes (23 NYCRR 200.3(c)).
- Virtual currency does not include digital units used solely within online gaming platforms, with no market or application outside them, and not convertible into or redeemable for fiat or virtual currency. It also excludes units redeemable only in customer affinity or rewards programs without conversion into fiat or virtual currency, and units used as part of prepaid cards (23 NYCRR 200.2(p)).
- Licensees are not authorized to exercise fiduciary powers as defined under section 100 of the Banking Law (23 NYCRR 200.3(a)), and may not conduct virtual currency business activity through an agent that is not a licensee (23 NYCRR 200.3(b)).

What we would look at:

- Map each product flow against the five activity types and the definitions of transmission and exchange service.
- Test each flow against the New York resident definition, which includes conducting business in New York.
- Check whether an exclusion or exemption fits the facts, and whether any agents are licensees.
- Because the text is current only through October 31, 2023, confirm the current version with the New York Department of Financial Services before relying on it.

Who needs a New York BitLicense? What counts as virtual currency business activity involving New York or a New York resident?

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