Since launching in the U.S. last week, we have answered a number of questions from the community. Transparency is one of our core principles and as such, actively responding to your questions and feedback is important to us.
Our regulatory approach, specifically our trust charter, has been a source of great interest. Below, we address some of the recurring questions with regards to the itBit Trust Company:
Is the itBit Trust Company a bank?
The itBit Trust Company (ITC) is organized under New York Banking Law, but is not a bank in the traditional sense. ITC does not accept or hold deposits that can be lent out or used for its own corporate purposes nor does it issue loans or credit to customers. ITC is a custodian1 under NY law for our US customer’s assets (USD and bitcoin).
As a custodian, ITC is the safe-keeper of all USD and bitcoin deposits from our U.S. customers, backing all deposits with required capital reserves. Also, as a trust, ITC has a legal duty to act solely in our customer’s interests and may not profit from our customers.
Does a trust charter exceed the regulatory requirements of the BitLicense and money transmitter licenses?
Yes. The trust charter application process is far more rigorous than that for obtaining the BitLicense or money transmitter licenses. In fact, itBit is exempted from getting a BitLicense under the proposed framework because of our trust charter under New York Banking Law.
The table below highlights the key differences between a trust company and the BitLicense or money transmitter licenses:
Some others in the Bitcoin industry have sought to conduct simple cash-for-Bitcoin exchange services by seeking money transmitter licenses. itBit, however, recognized that to establish a full-service virtual currency exchange required custodial and trust services only available through a trust company charter. Not only is this a well-established company form–recognized across the country–but it provides the legal powers to allow one-stop service to customers.
What type of regulatory requirements is itBit required to meet in the US?
itBit operates under the direct supervision and regulatory authority of the New York State Department of Financial Services (NYDFS), which includes all of its capital, liquidity, customer protection, cyber security and anti-money laundering (AML) requirements. As a trust, itBit also has to undergo regular regulatory exams administered by the NYDFS as well as third-party audits. These standards are the strictest among Bitcoin companies as itBit must comply with the same requirements applied to banks.
itBit as a trust company, is authorized to hold customer cash and bitcoin in custody for the benefit of its customers. Additionally, it can perform other trust responsibilities such as escrow, corporate services, etc. This provides itBit with a much more flexible business model than available to money transmitters, and provides itBit customers with superior functionality in conducting their bitcoin transactions.
Why did itBit decide to get a trust charter in the first place?
In order to fully operate an exchange in the state of New York, a trust charter is essential so that you can provide the additional custodial services necessary as a full-service exchange.2 Early on, we decided to only open our exchange in the US if we could service all US customers nationwide in a fully regulated and compliant manner. Not only does a trust allow us to take NY customers, but we also can provide the full scope of custodial services necessary to offer a full-service exchange to customers from throughout the U.S.
So, while other bitcoin companies operate in the US with, at best, a handful of money transmitter licenses, we embarked on an arduous 16-month journey to obtain the first trust charter issued in New York State since before the financial crisis.
If itBit only has a trust charter in New York then how can it operate in a regulated manner nationwide?
itBit can serve customers at its New York-based exchange from throughout the United States who comply with itBit’s on-boarding process and conduct their transactions through the New York exchange. Though itBit’s trust charter is a first for the bitcoin industry, obtaining a trust is not a new way of operating an exchange nationwide. The most prominent example is the Intercontinental Exchange (ICE), one of the world's largest exchanges which operates ICE US Trust, another New York-based trust company. As a trust company, itBit can conduct exchange services for customers regulated by the NYDFS under state law and is subject to reporting requirements to the federal Financial Crimes Enforcement Network (FinCEN). While the law governing virtual currency businesses will continue to evolve, itBit has adopted the trust company model, in part, because being subject to bank-like regulation means it will already be complying with the most rigorous regulatory standards. It is very unlikely that standards for the virtual currency marketplace will exceed bank standards.
Can a BitLicense enable a bitcoin exchange to operate in New York?
The NYDFS has not finalized its BitLicense regulatory framework yet. While the most recent proposed language for the BitLicense framework includes exchange services within the “virtual currency business activity” requiring a BitLicense. We believe that NYDFS will require any future exchanges in NY to meet the high level of regulatory requirements that itBit now meets. In addition, there are custodial requirements to operate an exchange and a BitLicense as currently drafted does not grant that authority. Our policies and procedures not only meet the framework in the BitLicense, but go much further.
What does this all mean for itBit’s US customers?
itBit’s trust charter provides our US customers with three key features that you won’t find on any other bitcoin exchange:
Protection for USD deposits through FDIC-insured bank deposits ($250,000 per depositor) and superior security for bitcoin deposits, backed by itBit Trust Company’s capital reserves.
Regulatory oversight of itBit’s exchange by the NYDFS, which already oversees some of the most sophisticated exchange operations globally.
Monthly account statements and year-end tax reporting documents.
If you have additional questions or feedback for us, we want to hear it! Please contact us at firstname.lastname@example.org.
1. An agent and specialized financial institution responsible for safeguarding a firm's or individual's financial assets.