It looks like this is a banking charter and not a money transmitter license (?)

It's a limited-purpose trust company - it can only accept assets as trustee and cannot hold cash as a customer deposit. Because depositors' funds aren't at risk, these entities don't have to join the FDIC and are exempt from some other regulations.

I guess because itBit acts as a custodian for Bitcoins and not just a transmitter, the DFS thought it was a closer fit than a money transmitter license.

I thought that was possible but it's inconsistent with everything else I know. I think it's the reporter's misunderstanding of what a money transmission license is, though I'm happy to be corrected if anyone can find proof that a BitLicense suddenly shifted from being a modified MTL to a bank charter after the comment period... It seems like the FDIC would have a lot to say about that; also it would be totally insane to start handing out state bank charters to virtual currency operators when typical money transmitters don't qualify due to their [much lower] risk profile.

The problem is that a Trust Company does have properties that require it not to have MTL's, but it also is restricted in few areas, such as custody to custody movement. Getting a Trust charter is not easy, there is no worry of it being handed out like free candy. I think you will find companies getting Trust charters, only to realise that there are certain things it can not functionally do.

See here: http://www.dfs.ny.gov/about/press2015/pr1505071.htm

This definitely raises more questions than it answers. Can a typical money transmitter just pretend to handle Bitcoin as well and magically exempt itself from the state money transmission framework? Do other states consider this kind of trust company to be a bank or a money transmitter? What does FinCEN think?

>>Can a typical money transmitter just pretend to handle Bitcoin as well and magically exempt itself from the state money transmission framework?

It has restrictions and depending on how the Trust was constructed, it may not be applicable in other states for certain transmission activities.

>>Do other states consider this kind of trust company to be a bank or a money transmitter?

They evaluate what the Trust was built for,and what the company wants to do in their state, and evaluate whether there is a delta or overlap.

>>What does FinCEN think?

no diff, still have BSA/AML obligations and commitments.

It is neither, it is a Trust Company charter.

...which is odd because according to FinCEN (the federal government) Bitcoin exchanges are money transmitters. But a money transmitter could be any company so maybe it's not so odd.

These laws are an absolute mess is the lesson here.

someone has to develop at the federal level a "kernel" for financial institutions.

i can dream, can't i?

Does it matter where the person using the exchange is? or only that the exchange be physically located in NY?

It depends on the state statute. Generally I've been told that it matters where the customer is.