N.Y.’s Proposal For Licensing Bitcoin Businesses Includes Plan For Consumer Protections

Maybe you still don’t know exactly what a Bitcoin is, but in case you ever want to use one, it’d be comforting to know you’ve got some protection when spending the cryptocurrency. New York has taken a step in the direction of keeping consumers’ safe with a proposed plan that sets up a regulatory framework for any business dealing with bitcoins.

The New York Department of Financial Services announced a draft for its proposed plan [PDF] today for any bitcoin or virtual currency businesses operating in the state, dubbing it the “BitLicense” plan.

That draft includes consumer protection, anti-money laundering compliance and cybersecurity rules, all of which will be up for a public commenting period of 45 days as of July 23.

On the consumer front, the BitLicense plan has rules covering the safeguarding of consumer assets, a requirement for businesses to issue consumers virtual currency receipts and a stipulation that businesses must establish and maintain written consumer complaint policies in order to “resolve consumer complaints in a fair and timely manner.”

Each company also has to provide notice to consumers that they can bring complaints to the DFS’ attention if they’d like the department to look into an issue further.

And because the bitcoin industry is just a young thing, businesses also have to provide “clear and concise” disclosures to consumers telling them about the potential risks of using virtual currencies. That includes the fact that once you’ve completed a transaction, the funds might not be recoverable, and that it’s not legal tender and is not backed by the government, among other things.

“We have sought to strike an appropriate balance that helps protect consumers and root out illegal activity – without stifling beneficial innovation,” says Benjamin M. Lawsky, Superintendent of Financial Services. “Setting up common sense rules of the road is vital to the long-term future of the virtual currency industry, as well as the safety and soundness of customer assets.”