Critical Review Looms for BitLicense Oversight in New York

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Key takeaways:

  • Thomas DiNapoli, the Comptroller of New York State, expressed his disapproval of BitLicense’s administration at the NYDFS.
  • It is suggested by DiNapoli to create official protocols for the examination follow-up procedure.

Thomas DiNapoli, the Comptroller of New York State, expressed his disapproval of BitLicense’s administration at the New York Department of Financial Services (NYDFS).

DiNapoli gave only a “limited assurance” in a January report on the state’s digital currency licensing program that the NYDFS carries out its supervisory duties with regard to BitLicense. In addition, the NYDFS is in charge of managing the state’s other financial agencies.

DiNapoli drew attention to a deficiency in the comprehensiveness of the prospective licensees’ security checks. For instance, the research conducted by his team revealed that two of the eight tested applicants had not finished the fingerprinting procedure prior to the application being approved.

Also, neither minimal net worth data nor evidence of the NYDFS’s ability to check applicants’ tax responsibilities have been provided.

Additionally, the Office of the Comptroller found that the NYDFS was expected to undertake examinations of the licensee’s financial situation and the soundness of its companies every two years, but there had been a three-year lapse. 

When a BitLicense is granted after four years have elapsed from the date the companies submitted their anti-money laundering documentation, it is highly probable that the documents were introduced more than four years ago. It is suggested by DiNapoli that official protocols for the examination follow-up procedure be created.

The NYDFS’s response to the audit is also included in the document; it states that the agency has already designated this as an “area for improvement” and has implemented a template to monitor examination findings and follow-ups.

For these reasons, it established a BitLicense Examination Findings Tracking Procedure in April 2023. Of the eight licensees sampled, the Comptroller observes that only one received a tracking letter from the NYDFS.

Since 2015, cryptocurrency companies doing business in New York must apply for a BitLicense with the NYDFS. There are currently 32 regulated entities on the list of licensees, including PayPal, BitPay, Circle, Coinbase, Gemini, and Paxos.

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