New York is on the verge of getting new licensing rules governing commercial use of virtual currencies including bitcoin. As Benjamin M. Lawsky steps down next month as head of the New York State Department of Financial Services (NYDFS), he will unveil a set of rules known colloquially as the BitLicense, The Wall Street Journal reported Thursday (May 21).
BitLicense traces its genesis to the end of 2013, and would govern how digital currency companies might be regulated in the state. There was a comment period in March. During that comment period, bitcoin firms, financial backers and other players stated they are concerned that the BitLicense, the first one of its kind, will serve as a harbinger for what is to follow in other states.
Industry participants worry the regulations could place stumbling blocks in the way of small tech companies or startups with limited access to funds and other resources.
Though recent proposals debuted in February of this year that are less onerous than ones released last July, bitcoin participants have taken issue with anti-money-laundering provisions. Anti-laundering rules, as disclosed in the latest round in February, could apply to wallet app businesses, which give consumers direct control over bitcoins.
Instead, laundering efforts should focus on services that actually take “custody” over virtual currencies. In addition, business leaders have also said the idea that the NYDFS has approval of software is onerous given the fact that software development is so fluid.
Leaders in the nascent virtual currency arena “are fighting for the rights of companies that do not yet exist,” said Fred Ehrsam, a co-founder of Coinbase, a currency exchange and bitcoin service provider who organized the New York commentary meeting. The executive noted that it would cost his company $2 million to satisfy licensing requirements nationwide.
In the WSJ interview, Lawsky said the industry had “misplaced” concerns over software updates and other proposed rules. “We make it crystal clear that we are not going to regulate software providers or software creators or people doing code. The MIT student has nothing to worry about,” he said. “We are only regulating financial intermediaries.”
Referring directly to software updates, Lawsky said his agency has “no interest if they make an update to their code in having them every time get approval for that. It is about when you’re fundamentally changing what you are doing in a material way.”
Lawsky, The Journal said, also “played down” New York rules that would require some currency providers to apply for traditional money-transmission licenses alongside the applications for new BitLicenses. Attributing the duality to a “quirk” of New York law, he said “you will be able to file just one application for both and you will be able to cross-satisfy so that even in those duplication cases you don’t have to do the paperwork twice.”
In the meantime, the BitLicense would debut just as large institutions on Wall Street are looking to invest in smaller companies and help develop virtual currency technology, particularly the technology known as blockchain ledger. Over the past several weeks, financial powerhouse Goldman Sachs, along with IDG, took a $50 million investment in Circle Internet Financial, a consumer services company. And NASDAQ OMX Group launched a test of the blockchain’s ability to conduct real time settlements.
Lawsky, whose interview with the Journal came before his Wednesday announcement that he would be stepping down to transition to consulting, said Wall Street and the bitcoin industry’s fears of draconian regulations are “overblown” and the overarching theme of BitLicense “is to find the appropriate balance between protecting consumers and carving out enough freedom for developers to build new products with what he has called this ‘promising technology,’” The Journal noted.