The New York Department of Financial Services (NYDFS) made history last summer when it proposed Bitcoin regulations (reportedly the first in the nation) including the requirement that financial firms handling virtual currencies or Bitcoins in New York or for New York residents to obtain a license from NYDFS.

On June 3, 2015, the NYDFS adopted the final regulations, entitled “Virtual Currencies.” The final Regulations prohibit any person or entity from conducting any Virtual Currency Business Activity without a license. Persons or entities chartered under New York Banking Law and approved by the Superintendent to engage in Virtual Currency Business Activity and merchants and consumers that utilize Virtual Currency solely for the purchase or sale of goods or for investment purposes are exempted from the licensure requirement.

The regulations have gone through two iterations with months of comments, roundtables and conferences sponsored by NYDFS. Primarily adopting the second version of the proposed Regulations, they are designed to regulate the “conduct of business involving Virtual Currency.” They require that cybersecurity policies be put in place by companies obtaining a Virtual Currency license, including identifying a Chief Information Security Officer and Compliance Officer, that detailed books and records be put in place of all customers so they can no longer be anonymous, that detailed records be kept of each Virtual Currency transaction, and to suspend accounts of any users they feel may be engaging in fraudulent activity. In addition, written compliance policies, must be developed and adopted, including “policies with respect to anti-fraud, anti-money laundering, cyber security, privacy and information security,” and such policies “must be reviewed and approved by the Licensee’s board of directors or equivalent governing body.”

The Regulations provide details on how to obtain a license and the initial application fee is $5,000 and is non-refundable. Although NYDFS is intent on regulating the new technology of Virtual Currencies, the Regulations do not provide for the payment of the application fee with Bitcoins and we suspect that NYDFS’ technology system might not be able to handle a Bitcoin transaction.

Importantly, companies engaged in Virtual Currency Business Activity must apply for a license by July 20, 2015 or will be deemed to be “conducting unlicensed Virtual Currency Business Activity,” and subject to regulatory enforcement by NYDFS. This gives Virtual Currency businesses a very short time frame to shore up policies and procedures and other requirements in order to obtain a license and comply with the Regulations.