Bittrex Loses BitLicense Bid over Shoddy KYC Technique
The New York financial regulator discovered multiple discrepancies and unauthorized trades, refusing to grant the business license to one of the most active US-based exchanges.
Bittrex, one of the most active US-based exchanges, failed to receive BitLicense after years in application attempts, just a day after the business permit was awarded to the European exchange Bitstamp. The reasons for the decline in renewing the business license were discrepancies and omissions in the know-your-customer screening procedure.
The exchange refuted the harsh accusations, stating that its procedures, unrolled over the years were adequate. The market operator applied for BitLicense in August 2018, right after the new regulatory requirements came into force.
This is not the first time Bittrex has had KYC-related issues. Earlier, during the market peak, the exchange had troubles with leaked passport information, apparently from sending out passport files through unencrypted email. KYC procedures were hastily adopted, and users have expressed concern that some of the operators were inadequate or unprofessional. Additionally, fears of information abuse, selling and using passport data to create multiple accounts have been mentioned on social media.
The New York State Department of Financial Services did not spare the criticism against Bittrex, stating it did not discover a robust internal monitoring procedure, easily allowing the exchange to work through dubious transactions. Some of the tokens listed on the exchange were also added without proper screening.
Bittrex sees volumes of around $91 million in 24 hours, and is seen as one of the niche exchanges for a vast selection of small-scale tokens. The market supports 341 trading pairs.
With the loss of the license, there are now only 18 companies authorized to offer cryptocurrency-related services in the state of New York.
The recent debacle may mean Bittrex has allowed transactions that go against money laundering restrictions, and possibly allow for terrorism financing. Additionally, coins listed on Bittrex have seen disproportionate activity and pumps, distorting the markets.
During the years in review, Bittrex received multiple warnings of deficiencies in its compliance approach, breaking multiple anti-terrorism and foreign asset rules. Name checks and compliance training were seen as some of the faulty points, and omissions included obviously faked user names.