Ben Lawsky, the superintendent of New York’s Department of Financial Services (NYDFS), released his final version of the Bitlicense, regulations for digital currencies in the state.
Lawsky, with input from the Bitcoin Community, has been working on the license for a year and will soon leave the NYDFS to enter the private sector.
Members of the Bitcoin Community believe the license contains several provisions which will impede digital currency innovation in the state.
They argue that the new Bitlicense has the following flaws for cryptocurrency businesses:
- A more restrictive anti-money laundering regime than ever applied to legacy payment systems.
- Requirement of pre-approval of products by the NYDFS superintendent will impact innovation.
- Custody or control of consumer funds is undefined thus not taking full account of the technology’s capabilities.
- License language prevents businesses from protecting customers transaction histories from being made public.
- There is no defined path for startups.
Bitcoin Ecosystem investor Barry Silbert summed up the community’s reaction to the final license:
Summary of bitcoin community’s reaction to the final BitLicense: “meh” #honeybadger
— Barry Silbert (@barrysilbert) June 3, 2015
Bitcoin sector proponents were significantly concerned with Bitlicense definitions for multisig security, key custodians, and AML requirements. Jerry Brito, the head of Bitcoin advocacy group Coin Center, tweeted:
Surprised and saddened that NYDFS didn’t update BitLicense definitions to clearly exclude multi-sig. Uncertainty is bad for innovation.
— Jerry Brito (@jerrybrito) June 3, 2015
Ryan Selkis, Director of Investments at the Digital Currency Group, responded adding Lawsky to the Tweet exchange:
— Ryan Selkis (@twobitidiot) June 3, 2015
In regard to Bitlicense’s anti-money laundering requirements, Brito stated in the Center press release:
Despite the changes to anti-money laundering requirements that the superintendent cited in his speech, the final Bitlicense still creates an unprecedented and discriminatory state-level AML reporting obligation. The new language is vague and unclear about how compliance with federal regulations will exempt a BitLicensee from those state-level obligations. My question is, if you register with FinCEN, do you have AML obligations to New York State?
The Center’s Director of Research Peter Van Valkenburgh, added view on the new Bitlicense version:
The final Bitlicense still creates a lopsided regime as between digital currency businesses and traditional money transmitters and banks. It has cybersecurity and state-level anti money laundering requirements that will not and have never applied to the legacy payments industry. The Department has rationalized this discrepancy by suggesting that it would apply the same heightened standards to the banks and money transmitters. With the Superintendent’s imminent departure, however, we are left wondering if that will be the case.
Van Valkenburgh and Brito recently published a framework for digital currency legislation designed to help lawmakers craft policy for the technology.
Regulations state by state can also be very different. Coinbase recently suspended its wallet operations in Wyoming as a result of legal interpretations of digital currencies by the State’s Division of Banking.
Coin Center provides a comparison of state regulatory initiatives that currently only covers California, Connecticut, New Jersey, New York, North Carolina and Pennsylvania. The other states apparently have not formulated anything substantive.