NEW YORKNEW YORK (Reuters) - The New York Department of Financial Services said on Wednesday it has rejected the application of Bittrex, a U.S.-based digital asset exchange, for a virtual currency license that it needs to operate in the state.

In a statement, the DFS said it denied Bittrex's application due to deficiencies in the exchange's capital, as well as anti-money laundering, requirements. It cited its "failure to demonstrate that it will conduct its business honestly, fairly, equitably, carefully, and efficiently."

The New York regulator also ordered Bittrex to cease operating in the state of New York and wind down its business within 60 days.

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Bittrex, in an email to Reuters, said, it "fully disputes the findings" of the DFS. The company believes the DFS decision "harms rather than protects New York customers."

"Corporate responsibility is in our DNA and our commitment to regulatory and compliance guidelines is second to none," Bittrex said. "More specifically, today's letter (from the DFS) contains several factual inaccuracies."

The cryptocurrency exchange has been able to operate in New York under the terms of a "safe harbor," which is permitted by the DFS while its application for a virtual currency license is pending. Bittrex said it first applied for a Bitlicense with the department in August 2015.

In a letter to Bittrex Chief Executive Officer Bill Shihara, who along with a group of security professionals founded Bittrex in 2013, DFS said it had issued several deficiency letters to Bittrex, including on anti-money laundering, due diligence, and capital requirements.

It noted Bittrex's inadequate customer due diligence, with a large number of transactions missing required tax identification numbers or customer names.

DFS examiners also found a substantial number of aliases such as "Give me my money", "Elvis Presley", "Donald Duck", as well as what the regulator described as "obscene terms and phrases" that are used in identifying accounts at Bittrex.

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Overall, it found Bittrex's compliance program deficient given that it has a customer base of about 1.67 million users across multiple countries, including 35,000 New York-based users, offers 212 cryptocurrencies and processed more than 100 million transactions annually in 2017 and 2018.

(Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan Oatis and Susan Thomas)