On Thursday, July 17, the New York State Department of Financial Services released a draft for their 'Bitlicense' Bitcoin regulation framework. This may be a huge step in government involvement in the Bitcoin industry, spearheaded by First Superintendent of Financial Services of New York State, Mr. Benjamin Lawsky.
The NY Department of Financial Services has submitted this framework for a 45-day advance notice during which time feedback is strongly urged. Official public commenting won't be available until the 24th of July. Public comments will have to be submitted in a formal manner as dictated by the NY State Administrative Procedures Act, interested Bitcoiners should visit this site to learn how to do so.
Essentially, this regulation will make Bitcoin and virtual currency business activities require 'Bitlicense.' From the document, page 5:
“Virtual Currency Business Activity means the conduct of any one of the following types of activities involving New York or a New York Resident:
(1) receiving Virtual Currency for transmission or transmitting the same;
(2) securing, storing, holding, or maintaining custody or control of Virtual Currency on behalf of others;
(3) buying and selling Virtual Currency as a customer business;
(4) performing retail conversion services, including the conversion or exchange of Fiat Currency or
other value into Virtual Currency, the conversion or exchange of Virtual Currency into Fiat Currency or other
value, or the conversion or exchange of one form of Virtual Currency into another form of Virtual Currency; or
(5) controlling, administering, or issuing a Virtual Currency”
This may have and is having major ramifications for not only present Bitcoin companies and startups in New York, but will certainly serve as a framework for future regulations throughout the world.
Bitcoin Companies Respond
Many Bitcoin companies are releasing their public responses. Some companies are accepting the regulation, others offering critiques.
From Coinsetter in New York City:
“I’m enthusiastic about the progress that the New York DFS is making on the BitLicense. Coinsetter intends to apply for it as final applications become available.” - CEO Jaron Lukasiewicz
"We applaud the thoughtful and transparent approach that Benjamin Lawsky and the NY DFS have taken in examining consumer protection issues surrounding virtual currency and related businesses. We believe this framework is important for the ecosystem to operate in a compliant and trustworthy way, and shows the DFS’ ongoing dedication to improving the stability of the industry."
"We take every possible measure to ensure that itBit protects consumers, prevents abuse and provides security. The proposed BitLicense aligns with our current standards and practices, and we have every intention to be in compliance with the final guidelines.” - CEO Charles Cascarilla
From BitPay, who goes in depth with their careful critique:
It is commendable that NY DFS and Ben Lawsky are supporting innovation while ensuring balanced regulations.
The proposed framework reflects DFS’ strong understanding of the bitcoin ecosystem, including valuable services to consumers that would benefit from an emerging, efficient and cheaper payment system...
strong understanding of Anti-Money Laundering/Anti-Terrorist Financing and T Trade Sanction obligations, including existing Virtual Currency regulations and exemptions at the Federal level...
ability to leverage the Bank Secrecy Act and the significant resources that are already expended by the bitcoin ecosystem to comply with anti-money laundering and anti-terrorist financing requirements...
and openness in setting a standard in the next 45 days that will likely be followed by other states.
BitPay welcomes the comment period for DFS to engage and receive feedback from the all stakeholders, including the bitcoin industry.
BitPay wants to ensure consumers and merchants have access to innovation, and the true potential for an efficient, cheaper, faster payment system
And this is the key to the policy:
BitPay and others may want to seek clarity on the following:
VC Transaction Reporting - especially purchases over $10K per day could represent an unlevel playing field as purchases via credit or debit cards over $10K are not reported
Identification for Large Transactions – whether transactions represent purchases of goods and services. This rule may be reasonable for exchanging of BTCs with fiat currencies and vice versa, at VC custodians; however, it may be unnecessary for purchases of goods and services similar to commerce today.
Cyber Security Program - having sound security controls is paramount; however, the requirements of annual penetration test and others may inhibit further innovation, as smaller ecosystem entrants would face significant costs. The framework may benefit from a more risk based program or establishing nominal thresholds that would enable innovation while ensuring controls or transparency to protect consumers
- CCO Tim Byun
Not a Bitcoin company, but from Erik Voorhees, the founder of Satoshi Dice, comes an even more candid reflection on the NYDFS's Bitcoin Proposal.
Just an excerpt:
"...This is not consumer protection. This is explicit surveillance of private citizens who are not accused – nor even under suspicion – of committing a crime..."
Bitcoin regulation will be a huge issue in the years to come. As this gets established, it will set a precedent in the developed world for governments to attempt to 'control' the bitcoin market. What many of the Bitcoin community, myself included, are worried about is the potential of heavy-handed politics and government oversight to crush and squeeze out innovation and grassroots start-ups, many of whom have significantly fewer resources to deal with in order to comply. If the small businesses and start-ups fall, then the Bitcoin industry would therefore become much more centralized both due to regulation and the killing of future innovation.
The NY DFS' press release can be seen here.
The drafted document can be seen here.