The New York Department of Financial Services rejected Seattle-based crypto exchange Bittrex’s application for a BitLicense Wednesday.
In a letter published by NYDFS, the NY regulator explains that a number of factors contributed to the rejection, the first such action in two years.
“Throughout Bittrex’s application process, the Department worked steadily with Bittrex to address continued deficiencies and to assist Bittrex in developing appropriate controls and compliance programs commensurate with the evolving nature of the sector,” wrote Daniel Sangeap, deputy superintendent and deputy counsel at NYDFS.
The regulator “issued several deficiency letters” since the exchange first submitted an application, addressing Bittrex’s anti-money laundering procedures, Office of Foreign Assets Control compliance and its coin listing process.
However, a number of concerns remained unaddressed, Sangeap wrote.
The letter goes into detail, saying that “Bittrex’s current policies and procedures are either non-existent or inadequate,” questioning the “level of authority and effectiveness of the Compliance Officer,” saying it may have an inadequate training program for employees and raising a number of other issues.
In a statement, Bittrex disputed the regulator’s findings and said it has already begun addressing many of these concerns. (read the full statement below).
Sangeap’s letter pointed to Bittrex’s OFAC screening process, saying it may not be able to identify misspelled names, that its monitoring process is manual rather than automated and that the exchange’s “active customer file” indicated that Bittrex processed “several transactions involving customers from OFAC sanctioned countries.”
Customer due diligence was another highlighted issue.
Some of the accounts are identified by “clearly false names” such as “Elvis Presley,” “Donald Duck,” “Give me my money” and “abc-abc,” as well as “obscene terms and phrases” (no examples were provided).
In its statement, Bittrex said NYDFS’ sample came from 2017, but that the exchange has implemented more stringent customer identification processes since, going so far as to disable any accounts which do not meet its “enhanced verification standard.”
Further, its Iranian customers were reported to OFAC in January 2018, the exchange said.
Coin diligence
One section of the letter, titled “lack of adequate due diligence in launching tokens or products,” states that examiners from NYDFS were “unable to assess compliance” with the exchange’s own token review policy when looking at a random sample of 15 cryptocurrencies.
“This was due to the fact that partial files were provided to the examiners, and moreover, actual compliance in certain files could not be established,” Sangeap said. Some tokens were listed despite some applicants refusing to complete the necessary paperwork – “and in one case … there was no application on file at all.”
The exchange offers more than 200 cryptocurrencies to its customers, including through an OTC trading desk launched earlier this year.
In its statement Wednesday, Bittrex said NYDFS presented a supervisory agreement to the exchange which would have allowed it to offer only 10 cryptocurrencies.
“This would have prohibited Bittrex from listing coins that are offered to New York residents by other BitLicensees,” the statement said. “NYDFS reserved the right to order us to withdraw coins at any time. Additionally, DFS would be able to prohibit offering tokens to NY residents, even if other NY BitLicense holders were able to offer the tokens.”
These terms were unacceptable to Bittrex, the company said, and it refused to sign the agreement.
Bittrex has 14 days to confirm to NYDFS that the exchange has ceased conducting business in New York and create a plan to wind down any existing business with state residents.
The exchange will have 60 days in total to transfer any assets it custodies for New York residents and transfer any positions or transactions.
An NYDFS spokesperson told CoinDesk that there is no appeals process for the rejection, though Bittrex can reapply for a BitLicense.
Bittrex Statement by CoinDesk on Scribd
