According to Aiying, in the latest list published on the official website, Web3 infrastructure provider Fireblocks has obtained a Limited Purpose Trust Charter, which allows it to provide cryptocurrency custody services to customers in the United States, allowing it to engage in virtual currency business. It is expected to soon begin providing cold storage custody solutions based on Fireblocks technology to American customers.
Fireblocks’ trust company is part of its global plan to build a regulated cryptocurrency custody network. Fireblocks launched a global digital asset custody network in June, with all custodians using Fireblocks’ technology and connecting with customers through the Fireblocks platform.
Obtaining a limited purpose trust company charter provides an alternative for crypto companies to do business in New York State, and it provides additional benefits compared to the New York State BitLicense. According to NYDFS regulations, "a limited purpose trust company may exercise fiduciary powers, including custodial services, and may engage in money transmission business in New York State without the need to obtain a separate New York money transmission license."
In the United States, federal and state laws have formed a delicate "co-opetition" relationship in cryptocurrency regulation. Federal regulation is mainly handled by FinCEN, the Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC). FinCEN regulates cryptocurrency transactions through the BSA, requiring companies to register as MSBs and comply with strict anti-money laundering (AML) and customer due diligence (KYC) requirements. The SEC focuses on whether cryptocurrencies constitute securities and manages their issuance and trading. The CFTC is responsible for regulating the cryptocurrency futures and derivatives markets.
State-level regulation is diverse. New York State's BitLicense is currently the most stringent state-level cryptocurrency regulatory system, requiring companies to obtain a license to conduct business in the state. The process of obtaining a BitLicense is very complicated and expensive. Companies not only need to pay high application fees, but also need to invest a lot of resources to meet strict compliance requirements. However, companies that obtain BitLicense tend to gain higher market trust and recognition. For example, companies that have obtained BitLicense, such as Coinbase and Gemini, enjoy a high reputation among users and investors, which helps them attract more customers and funds.
Today, Aiying mainly wants to introduce the two licenses that Wed3 companies need to conduct virtual currency business in New York State: BitLicense and Limited Purpose Trust Charter.
BitLicense New York Virtual Currency License
The full name of BitLicense is "New York State Department of Financial Services Virtual Currency License". It is a regulatory framework launched by the New York State Department of Financial Services (NYDFS) in 2015, specifically for regulating companies engaged in virtual currency-related businesses in New York State. In other words, if you want to engage in the sale, storage or transfer of Bitcoin or other virtual currencies in New York State, you must first obtain this license. The following is a detailed introduction to BitLicense:
1. Scope of application
The BitLicense applies to all entities engaged in virtual currency business within the State of New York, including:
Receiving, storing and transferring virtual currency: for example, providing virtual currency wallet services.
Cryptocurrency exchange: converting cryptocurrencies into U.S. dollars or other currencies, or vice versa.
Virtual currency trading: buying and selling virtual currencies such as Bitcoin.
Payment processing: Services that enable payments using virtual currencies.
BitLicense is a broad term, but it actually covers licenses for different types of businesses. Depending on the specific business a company is engaged in, applications are divided into the following two categories:
Virtual Currency License: describes a license for engaging in basic virtual currency business (such as storage and transfer). This type of license is applicable to businesses that do not involve the transmission of legal currency. It can be understood as a virtual exchange license.
Virtual Currency and Money Transmitter License: This is more complicated and is applicable to companies that not only deal in virtual currency, but also involve converting virtual currency into legal currency or transferring money. It can be understood as a VAOTC virtual currency over-the-counter trading license.
2. Main requirements
Companies applying for a BitLicense must meet a series of strict requirements, which include but are not limited to:
Capital requirements: The company needs to maintain adequate capital reserves to ensure financial health.
Compliance requirements: Companies need to develop and implement Anti-Money Laundering (AML) and Know Your Customer (KYC) procedures to prevent illegal activities.
Cybersecurity: Companies need to establish a cybersecurity plan to ensure the safety of customer data and funds.
Consumer protection: Companies need to take measures to protect consumer rights and fully disclose relevant risks before transactions.
Reporting and Record Keeping: Companies are required to submit regular financial statements to NYDFS and keep all relevant business records for at least seven years.
According to the official website data, 22 institutions have obtained BitLicense licenses, including well-known companies such as PayPal, Robinhood, Bitstamp USA, Ripple, Coinbase, etc. The following is a list of the 22 institutions:
Limited Purpose Trust Charter
The Limited Purpose Trust Company License is a license issued by the New York State Department of Financial Services (NYDFS) specifically for trust and asset custody. This license allows the company to manage and custody clients' assets as a trustee in New York State. These assets can include traditional financial assets (such as cash, securities, etc.) as well as virtual currencies. The following is a detailed introduction to the license:
1. Definition and Purpose
Definition: A Limited Purpose Trust Company license allows a company to act as a trustee and provide asset custody and management services to clients. This license is usually issued to institutions that focus on providing trust services, asset management and custody services.
Purpose: Companies holding this license can manage various types of assets, including but not limited to cash, securities, precious metals and virtual currencies. This enables them to provide clients with more professional services such as asset management, financial planning, estate management, etc.
2. Application Requirements
Companies applying for a limited purpose trust company charter must meet a number of strict requirements, which generally include:
Capital requirements: A company needs to maintain sufficient capital to ensure its financial stability and service capabilities. Capital requirements are usually adjusted based on the size of assets the company plans to manage and its risk profile.
Background Checks of Management: NYDFS requires rigorous background checks of a company’s executives and board members, including their legal compliance, financial status, and professional qualifications.
Business Plan: The company needs to submit a detailed business plan describing the scope of its trust and custody services, target market, operating model, etc.
Compliance plan: Applicants need to develop a comprehensive compliance plan to ensure that their business activities comply with relevant laws and regulations. In particular, they need to comply with anti-money laundering (AML) and know your customer (KYC) regulations.
Cybersecurity measures: Companies must demonstrate their cybersecurity capabilities to protect the security of customer data and managed assets.
3. Regulation and Compliance
After obtaining a limited purpose trust company license, the licensed company must continue to comply with NYDFS's regulatory requirements, including but not limited to:
Regular Audits: Companies are required to undergo regular audits, which include financial reports, compliance procedures, risk management measures, etc.
Reporting obligations: Licensed companies must submit financial statements and other relevant reports to NYDFS on a regular basis to ensure that their operations are transparent and compliant.
Consumer protection: Companies need to develop and implement strict consumer protection measures to ensure the safety of customers' assets and provide adequate risk disclosure during the service process.
Currently, a total of 12 institutions have obtained this license, including Coinbase Custody Trust, a subsidiary of Coinbase that has provided custody services for eight Bitcoin ETFs in the United States. The following is a list of licensed institutions:
Information reference:
https://www.dfs.ny.gov/industry_guidance/industry_letters/il20200624_adoption_listing_vc
https://www.dfs.ny.gov/virtual_currency_businesses#bitlicense-faqs