State of New York Announces Proposed Bitlicense Requirements
On July 17th, New York State Department of Financial Services Superintendent Benjamin Lawsky announced that his agency’s long awaited bitcoin licensing framework will be released for public comment on July 23rd. The public comment period, which lasts for 45 days, provides New York’s nascent bitcoin industry with the opportunity to read and suggest changes to the proposed regulations.
In describing the proposed regulations on Reddit, Lawsky said “we have sought to strike an appropriate balance that helps protect consumers and root out illegal activity – without stifling beneficial innovation. These regulations include provisions to help safeguard customer assets, protect against cyber hacking, and prevent the abuse of virtual currencies for illegal activity, such as money laundering.” He went on to acknowledge that “not everyone in the virtual currency community will be pleased about the prospect of a new regulatory framework.”
The New York Department of Financial Services, which is responsible for regulating banks, insurers, and other “financial services” in the state, made news in the bitcoin community some months ago when it became one of the first government agencies in the US to signal that it might see cryptocurrencies as something other than a scam or money laundering threat.
So, what do the proposed rules actually look like? Not good. For starters, Lawsky’s agency wants to prohibit any and all “virtual currency business activity” by”unlicensed agents.” Who is exempt? “Persons that are chartered under the New York Banking Law to conduct exchange services and are approved by the superintendent to engage in Virtual Currency Business Activity.” Also exempt are “merchants and consumers that utilize Virtual Currency solely for the purchase or sale of goods or services.”
Applicants for the Bitlicense will be required to submit documentation similar to what one might expect for a bank charter- details about the business, biographies and background checks and PERSONAL FINANCIAL STATEMENTS for all officers and directors, FINGERPRINTS, and a non-refundable application fee (yet to be announced).
Subsequent to licensure, bitcoin businesses will be treated in much the same way as banks and insurers under New York law, with capital requirements, anti-money laundering and compliance program requirements, but not the authority to lend or even to substitute one virtual currency for another in the firm’s portfolio.
The proposed regulations place a number of onerous compliance burdens on bitcoin businesses with threaten to effectively place New York State off limits to all but the most generously capitalized cryptocurrency start-ups. Commercial banks, on the other hand, are already well positioned to comply with the rules with a minimum of expense and difficulty. Coincidence?
After Silk Road, Mt. Gox, Neo & Bee and other prominent failures and scams with a bitcoin nexus, Lawsky can hardly be faulted for trying to protect the consumers in his state. New York politicians seem to have a knack for seeking out the highest profile target they can find in the process of making names for themselves. However, by adapting regulations meant for banks, the State of New York has all but guaranteed that the “beneficial innovation” that they claim to support will happen somewhere else.
Somewhere like Texas…
