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Lawsky Defends New York BitLicense, Supports Both Consumer Protection and Bitcoin Innovation

Last Updated March 4, 2021 4:44 PM
Lester Coleman
Last Updated March 4, 2021 4:44 PM

16-publicdomain-Benjamin_Lawsky_pictureBenjamin M. Lawsky, soon to be departing as top regulator at the New York Department of Financial Services (NYDFS) to start a consulting business, defended his bitcoin licensing rules that have drawn criticism from bitcoin advocates, according to a report in Wall Street Journal.

Lawsky said his goal for the controversial BitLicense is to establish a balance between protecting consumers and allowing software developers the ability to create bitcoin products. Lawsky has a reputation as an aggressive financial regulator who consistently pushes for larger fines and stricter rules. He announced that he will depart the department in June to form a consulting business that will offer virtual currency advisory services.

BitLicense rules to be released

Lawsky’s bitcoin rules are likely to be released next week, the article noted. Critics worry that the rules could hinder innovation by small tech companies with limited resources. These concerns have been raised at a time when big financial service companies are investing in block chain technology.

The BitLicense plan has drawn criticism from bitcoin companies, investment firms and advocacy organizations. Critics believe the BitLicense will become a model for other states and will make it difficult for bitcoin services to expand. Some state regulators already require money transmitter rules for virtual currency businesses.

Critics weigh in

Brian Forde, director of the MIT Digital Currency Initiative, blogged that New York risks becoming the “bitcoin backwater of the U.S.”

Fred Ehrsam, co-founder of Coinbase, argued that established bitcoin companies such as his will benefit if startup companies can continue to innovate. He estimated it would cost Coinbase $2 million to fulfill all of its licensing requirements around the U.S.

Fred Wilson, a partner at the venture capital firm Union Partners, described the costs as a barrier to entry that encourage venture capital firms to focus on the established players.

Bitcoin advocates say the BitLicense anti-money laundering rules could apply to bitcoin wallets. They also say the requirement for a NYDFS approval of updates to provider software is impractical.

Also read: NYDFS’s Ben Lawsky reveals plans for transitional BitLicense at #money2020

Lawsky holds firm

Lawsky told The Wall Street Journal that such concerns are misplaced. He said there is no plan to regulate software providers or people doing code. Rather, he said the rules would apply to activities that fundamentally change “what you are doing in a material way.”

Lawsky also said he will work with other states so that prior to NYDFS approval of shareholder structure changes and other reporting requirements could help expedite approvals in those jurisdictions.

Wall Street firms are paying attention to BitLicense as financial service companies are investing in block chain technology.