Overview of the Proposal

While the proposal was published in the State Register late last month, the DFS immediately posted the regulations in full in two places—on Reddit (an open-source entertainment and social networking website) and through the Twitter feeds of the DFS (@NYDFS) and its Superintendent Benjamin Lawsky (@BenLawsky). This was a smart move by Lawsky, who is no stranger to Reddit. When he announced last year that his office would launch an inquiry into what types of guidelines New York should put in place for virtual currencies in order to protect against criminal activity without stifling innovation, Lawsky hosted an “Ask Me Anything” forum on Reddit, taking the conversation directly to the very individuals who would likely be most affected by the regulations. The conversation generated more than 1,200 comments, according to DFS. Similarly, publishing the first real state regulatory framework for virtual currency on virtual platforms first sends a message that the DFS is not only comfortable in these communities, it knows how to leverage them.

Some Bitcoin evangelists have already come out against Lawsky's proposal, saying that if New York is the only state regulating Bitcoin exchanges, those businesses will just set up shop in another state or another country. One Reddit user (“Redditers,” for those in the know), thedaemon23, declared that the “Bitcoin community is ready to come after this thing.”

Despite this pushback, Lawsky is betting on New York. CPAs—specifically, New York State CPAs—have a different objective: not to support or oppose the regulations, but to ensure that the CPA perspective is represented once the 45-day comment period ends and Lawsky and his team at DFS reshape their proposal based on what already appears will be an enormous amount of feedback from multiple sectors.

The CPA Perspective

Indeed, there is much for the profession to respond to. Once a business is licensed to transmit, secure, store, or maintain control of virtual currency on behalf of its customers, or to perform retail conversion services (the license would not be required for merchants or consumers who use virtual currency solely for buying or selling goods or services), Lawsky's rules would require it to submit to DFS quarterly financial statements within 45 days following the close of the licensee's fiscal quarter. Licensed businesses would also be required to submit audited financial statements, prepared in accordance with U.S. GAAP, along with an evaluation of the entity's accounting procedures and internal controls within 120 days of its fiscal year end.

CPAs should also provide some perspective on Lawsky's proposed consumer-protection rules, which would require licensees to provide to their customers all material risks associated with their products and services, including information about volatility. In addition, CPAs should comment on Lawsky's anti-money laundering program, which would require businesses to provide for a system of internal controls, an annual independent test for compliance that would be submitted to DFS, and other anti-money laundering policies that CPAs can offer guidance in developing.

The Virtual Currency Task Force

As of this writing, the NYSSCPA's Virtual Currency Task Force—composed of CPAs well versed in anti-money laundering, IT audit, international taxation, and investment management—is reviewing Lawsky's proposal and drafting a response. Task force members are also in the process of developing continuing education webcasts for Society members and other financial professionals so that when clients come calling with questions about Bitcoin, their trusted professional won't have to Google it.