itBit Files for Banking License in New York
Bitcoin exchange itBit has filed for a banking license in New York, Reuters reports. Approval for the license may come in the next couple of weeks, people familiar with the matter told Reuters.That could make itBit the first Bitcoin company to be regulated as a bank in the United States.
Founded in 2012, itBit has offices in two key financial markets, New York and Singapore. The company moved its headquarters from Singapore to New York in 2014.
“Bitcoin has become mainstream, the volume of bitcoin trading has grown exponentially, and the majority of bitcoin trading now takes place in the U.S.,” said CEO Charles Cascarilla. “Regulators are getting clearer about their policies, and we’re hopeful that we will be able to serve U.S. investors soon.”
The first Bitcoin company application for a U.S. banking license is part of the general industry trend toward mainstreaming, regulation and full compliance with anti-money laundering (AML) and know-your-customer (KYC) requirements.
“Some highly publicized failures and potentially illegal activity have focused attention on virtual currencies and have highlighted the need for a sound regulatory framework for virtual currencies,” said Cascarilla.
According to the company’s website, itBit is institutional-grade and 100 percent compliant within every jurisdiction it operates, and its strict compliance program ensures the highest level of customer security and protection. Recently, itBit hired Erik Wilgenhof Plante from eBay Inc as chief compliance officer.
Besides Cascarilla and his business partner Emil Woods, the banking license application for itBit Trust Company LLC lists high profile “organizers,” including former Federal Deposit Insurance Corporation Chairman Sheila Bair, former Financial Accounting Standards Board director Robert Herz and former New Jersey Sen. Bill Bradley.
The company is backed by venture capitalists, including Canaan Partners, RRE Ventures and Liberty City Ventures. So far, itBit has received $3.3 million in funding. The application for a banking license is part of itBit’s plan to expand its business into different financial services.
“ItBit is building next-gen digital currency products and services by combining Silicon Valley innovation with Wall Street expertise,” says the company’s website.
The proposed “Bitlicense” regulations for Bitcoin businesses operating in the state of New York won’t be a problem because the final Bitlicense requirements are likely to be, if anything, lighter than those of a standard banking license.
Some Bitcoin financial service companies, such as Circle and Bitreserve, operate with many service features of banks, including audits and insured deposits, and their customers tend to consider them “Bitcoin banks.” Still, they don’t offer the full range of banking services, and therefore they don’t need a banking license and can’t be considered banks.
“Bitreserve is not a bank,” states the Bitreserve website. “Banks make money by loaning out your deposits for interest. This system is called fractional reserve banking. The obligations a bank has to its depositors do not match the assets the bank holds, since most of those assets are in the form of loans made to generate revenue for the bank.”
The requirements for commercial banks in the State of New York are outlined on the New York Department of Financial Services website. In particular, the initial level of capital should be sufficient to support the proposed business plan and the bank’s risk profile. Initial capital should cover operating losses before the bank attains sustained profitable operations, as well as provide a cushion against unexpected losses.