NYDFS Exec Explains Why Regulator Rejected Bittrex’s BitLicense Application

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The New York State Department of Financial Services (NYDFS) has explained the reasons behind its rejection of the Bittrex BitLicense application.

According to the regulator’s deputy superintendent in charge of banking Shirin Emami, the crypto exchange’s media comments about the denial did not represent facts.

He notes that it’s untrue for Bittrex to claim that the NYDFS failed to provide necessary guidance and that its application remained with the regulator “for years.”

Per his statements, it is either that Bittrex “misunderstands or misrepresents” what is meant by providing guidance when related to the application.

Shirin notes that the regulator’s guidance to an applicant includes informing them about regulatory requirements and then notifying them of identified deficiencies that the applicant must address before they get the license.

He thus points out that NYDFS repeatedly informed Bittrex of the necessary requirements and sent letters describing regulatory failures. On its part, the exchange wasted time with promises of compliance but failing to deliver.

Bittrex also allegedly tried to persuade to overlook its compliance, which was different from what the state regulator envisages for all regulated firms.

Apparently, the exchange’s original application was full of deficiencies that needed correcting. The exec points out areas like weaknesses with Bittrex’s customer due diligence, unavailability of transaction monitoring, as well as deficiencies in compliance staffing.

The exchange’s transaction monitoring system, released in 2018, turned out to be manual and thus not secure. The matter is made worse by the fact that the platform’s customer identity system was inadequate.

A sample of user accounts taken for scrutiny revealed that there have been account holders from North Korea and Iran, with the latter still active in 2019. There were so many “fake name accounts,” which means Bittrex wasn’t complying with the Office of Foreign Assets Control (OFAC) demands.

Bittrex has also reportedly tried to evade responsibility in terms of the cryptocurrencies and tokens listed for trading. The exchange did not comply with due diligence procedures as set out in the NYDFS’ Virtual Currency Regulation. The exchange also listed coins without an efficient documentation process.

The NYDFS reportedly visited Bittrex in early 2019 to assess the crypto exchange’s compliance with the Bank Secrecy Act (BSA), Anti-Money-Laundering (AML) and OFAC requirements.

In a nutshell, despite repeated communication, the exchange failed to honor any promise of compliance or addressing the weaknesses. The regulator determined this on that final visit and thus moved to deny the license.

Bittrex has responded to this via a statement claiming that the NYDFS “is overstepping its regulatory authority” and that the regulator had at one time agreed to grant the exchange the BitLicense.

It also points out that the regulator ignored “its own rules,” including one on “manual or automated” systems for monitoring user transactions. It also denies that its platform has accounts registered by North Korea or Iranian citizens.

Though disappointed, Bittrex says that it is willing to work with all regulators, in the U.S., and across the world.


Disclaimer: This is not investment advice. Cryptocurrencies are highly volatile assets and are very risky investments. Do your research and consult an investment professional before investing. Never invest more than you can afford to lose. Never borrow money to invest in cryptocurrencies.

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