US-based cryptocurrency exchange Bittrex has been denied a BitLicense application by the New York State Department of Financial Services (NYDFS).
In a letter sent from the NYDFS to Bittrex CEO Bill Shihara on April 10, the regulatory body denied the exchange’s BitLicense application, citing a number of deficiencies the platform failed to address.
Perhaps most significant to the rejection was Bittrex’s “non-existent or inadequate” policies, specifically its Anti-Money Laundering (AML) and Know Your Customer (KYC) procedures.
The letter cited a number of glaring flaws in the exchange’s compliance program. While Bittrex has implemented 21 filtering scenarios for detecting suspicious activities, it seemingly does not make use of them in its processes, which are primarily manual. As an example, the NYDFS conducted a February review of Bittrex, and found that a sizable number of transactions for customers in sanctioned countries — such as Iran and North Korea — were processed by the exchange.
Furthermore, the letter describes Bittrex’s KYC policies as “seriously deficient”, citing swathes of missing data from transactions, as well as a substantial number of accounts using aliases, such as ‘Donald Duck’, and ‘Give me my money’, which it lists as examples.
According to the NYDFS, the department cooperated with Bittrex to address its deficiencies throughout the lengthy application process; with several letters being sent to the exchange regarding the inadequacies mentioned above, as well as coin listing processes and a number of other issues. Evidently, Bittrex failed to cooperate.
The exchange filed the application in August 2015, and has since been operating under the terms of a “safe harbor” within New York State. However, with the denial, the NYDFS has ordered that Bittrex immediately cease all operations within New York State, and all business with its residents by tomorrow, April 11. The exchange must also provide written confirmation of this to the NYDFS by April 24.
Since receiving the denial, Bittrex has issued a statement fully disputing the findings of the NYDFS. The statement cites Bittrex’s full KYC procedures — which include the requirement that all customers submit government-issued ID alongside a photo — as well as claiming that some of the evidence the department provided was either outdated or plain false.
Regarding Bittrex’s cooperation with the NYDFS, the statement explained how they attempted to negotiate terms of a supervisory agreement sent to them in January 2019, whose terms were “non-negotiable”. Citing what was likely the real reason for the BitLicense denial, the statement adds:
“During the application process, which included extensive engagement with DFS, including onsite visits for a period of four weeks, Bittrex was responsive to all of DFS’ requests for information. However, Bittrex respectfully but vigorously challenged DFS’ attempts to apply traditional bank-centric regulatory rules to an entirely different model.”
Since the NYDFS’ controversial decision to regulate the crypto market in 2015; the department has granted just 19 BitLicenses to companies — including cryptocurrency exchanges Coinbase and Gemini, and payment startups Ripple and Square — who are licensed to operate in the state.