The Department of Financial Services, New York state’s leading banking regulator, issued granted a Bitcoin exchange bank-like status for the first time in the nation’s history.
The newly licensed exchange itBit announced Thursday that it would open its gates to new clients as soon as it would receive a trust charter from the regulator. The company, which also has offices Singapore, also named three high-profile individuals as new members of its board of directors.
The three board members are a former top-ranking employee from the Federal Deposit Insurance Corporation, a former senator from New Jersey, and a top executive of Morgan Stanley.
According to the department, itBit will now follow the rules that apply to banks and it is the first U.S. exchange of its kind to gain complete regulation.
Charles Cascarilla, the company’s CEO, said that the latest move was a “big deal” not only for his company but for the entire industry since the latter still struggles to rebuild its image after a series of major downfalls.
Over the past years, exchanges that were under no regulatory control were involved in major scandals caused by questionable incidents that led to the disappearance of hundreds of millions of dollars. As public lost faith in the cryptocurrency, the financial problems became even deeper.
Just about this week, federal officials fined Ripple Labs, a Bitcoin company, for violating banking confidentiality and declining to report fraudulent operations. Ripple Labs currently owes the government nearly $700,000.
But the NY Department of Financial Services’ head has been struggling for more than a year to find the most appropriate way to regulate Bitcoin exchanges since they pose a series of security risks due to the currency’s extreme volatility. The department came out with the idea of a “BitLicense,” which requires further finalization.
But itBit didn’t filed for a BitLicense. The company aimed at obtaining a bank-like status, which implies even more tighter rules. Moreover, the company is the first trust firm to be founded in the state after 2008’s financial crisis.
According to the Department of Financial Services’ public statement released Thursday, virtual currencies such as Bitcoin need tight rules to function correctly and prevent negative impacts on customers’ funds. Lawmakers expressed their optimism that regulation could rein the industry’s fraudulent practices and maintain its long-term health.
By obtaining a bank-like status, itBit can manage customer funds by itself thus solving a pressuring issue with many BitCoin companies that are often denied the possibility of running operations through banks.
But it took more than a year for the company to obtain the trust charter, while relying on clients from Singapore to make revenue. Nevertheless, because opening an account with the company requires compliance with a cohort of regulations, itBit will first focus on large clients.
The Company’s current CEO has worked for Bank of America and Goldman Sachs, while other board members hold extensive Wall Street experience. Goldman Sachs was also the first bank to give a BitCoin company credit when it facilitated a multimillion dollar campaign for Boston-based digital currency company Circle.
To this moment, Bitcoin, which was rolled out six years ago by the elusive Satoshi Nakamoto, was usually traded on foreign exchanges, of which many ended in resounding collapses.
Image Source: Bitcoin Magazine