"When you’re looking to be a government regulated entity, you have to follow all the rules. You can’t allow anonymity anymore." Jason Seibert (securities lawyer) on rejected bitcoin exchanges.

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The NYDFS rejected Seattle-based cryptocurrency exchange Bittrex’s BitLicense application, and the resulting rejection letter serves as a blueprint for anyone looking to do crypto business in the Empire State.

For securities lawyer Jason Seibert, who has served on several landmark crypto cases, the crux of Bittrex’s rejection letter is on Page 4 in Paragraph D. He says it offers the 10,000-foot view of what it takes to operate a crypto exchange.

“…Bittrex has failed to demonstrate responsibility, financial and business experience, or the character and fitness to warrant the belief that its business will be conducted honestly, fairly, equitably and carefully,” reads the NYDFS rejection letter of Bittrex, which requested that the exchange provide within two weeks of the rejection written confirmation that it had stopped operating in New York State and doing business with its residents.

What’s clear is that anyone looking to operate as an exchange in New York State must abide by the Five Pillars of KYC and AML:

  • internal controls;
  • the designation of a Bank Secrecy Act (BSA)/AML officer;
  • a BSA/AML training program;
  • independent testing to test programs;
  • and a risk-based, customer due-diligence procedure

“For instance, you have to be able to know if there’s somebody that’s on a sanctions list or an OFAC list,” explains Mr. Seibert, referencing the Office of Foreign Assets Control. “So, it becomes an issue if an exchange doesn’t even know who their customers are due to the ability for users to create a false name or an alias account.”

Seibert points out that no one is going to win points with the regulator when they allow Elvis Presley to trade, as was the case with Bittrex.

“An exchange must see some form of ID, some sort of registration, some sort of link between an actual person and an account,” explains Seibert. “You can run an actual ID against a database like OFAC to make sure that it isn’t a sanctioned Russian who’s not supposed to be doing business in the United States or someone laundering money through a cryptocurrency exchange because they’ve created a false account. That’s the issue with these anonymous accounts. When you’re looking to be a government regulated entity, you have to follow all the rules. You can’t allow anonymity anymore.”

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full story: cryptographicasset.com/a-few-things-you-should-know-about-getting-a-bitlicense/

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