Just a fortnight ago, the New York Department of Financial Services (NYDFS) rejected Bittrex’s application for a BitLicense. According to the regulator, the crypto exchange had a considerable number of loopholes that it needed to address first before it could receive the license.
However, Bittrex was adamant that the NYDFS was just playing hardball.
And now, the executive deputy superintendent at the NYDFS, Shirin Emami, has come out to clarify the reasons it rejected the application. In a comprehensive report shared with CoinDesk, she accused the Seattle-based exchange of only sharing the parts of the story that favored its narrative.
Emami revealed that contrary to Bittrex’s narrative, the NYDFS didn’t fail in its role of providing guidance to the exchange. Further, Bittrex misunderstood the extent to which the regulator offers guidance.
“DFS’s guidance consists of informing an applicant of the regulatory requirements for a license and pointing out deficiencies that need to be addressed before a license is granted. The corrective work to address deficiencies remains the applicant’s responsibility.”
And yet, despite portraying the regulator in bad light, Bittrex had many deficiencies of its own, Emami continued. The first was its transaction monitoring which the regulator believes wasn’t robust enough. After the NYDFS insisted that Bittrex upgrades its transaction monitoring system, the exchange just ended up with an ineffective manual system. According to the regulator, Bittrex’s system was only capable “of handling a small volume of transactions, lacking the comprehensive and accurate risk assessment that must underlie any compliance program.”
Bittrex must stop advertising the system as adequate, Emami warned the exchange. This would be interpreted as “evidence of an intent to mislead regulators and markets, or evidence of genuine ignorance.”
The shortcomings didn’t stop there, with incomplete or missing customer identity data further compounding to the exchange’s problems. In a sample of accounts that the NYDFS collected, the number of fake accounts was alarmingly high. Out of the fake accounts, 70 percent were either still active or had been active at some recent time. Some still had funds at the time the regulator conducted an on-site review.
However, Bittrex has rebutted, claiming that the NYDFS is just shifting the rules to prove a point. In a note sent to CoinDesk, Bittrex stated:
“At its core, the New York DFS is overstepping its regulatory authority and changing rules and guidelines on the fly. The sheer fact of the matter is that, despite all of the supposed concerns the NY DFS has claimed, it was willing to agree to a supervisory agreement with Bittrex and grant a BitLicense in January 2019.”
Bittrex further warned the regulator that its behavior will only discourage other crypto firms from sharing information with them. Finally, Bittrex warned New York crypto users that the regulator they entrust could derail the progress of the crypto industry in the state.
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