New York Soon to Unveil Fresh Bitcoin Licensing Rules
In one of his final moves as New York’s top financial regulator, Benjamin M. Lawsky will soon unveil a set of new licensing rules that could have long-lasting effects on businesses using bitcoin and other virtual currencies.
In doing so, bitcoin advocates fear Mr. Lawsky will cement his reputation for taking tough stands against the financial industry.
Mr. Lawsky, in an interview with The Wall Street Journal, said those fears are overblown and that his goal for the so-called 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.”
Mr. Lawsky said on Wednesday that he will depart the New York Department of Financial Services in June to form a consulting business that will include virtual-currency advisory services.
The pending launch of the BitLicense comes amid a backdrop in which an increasing number of Wall Street institutions are exploring ways to adopt the blockchain ledger technology that runs bitcoin and other virtual currencies.
Some people in the nascent industry worry Mr. Lawsky’s rules, likely to be released next week, could hinder innovation among small tech start-ups with limited resources.
In the interview, which took place before Wednesday’s announcement of his resignation, Mr. Lawsky said the most-recent draft of the BitLicense already provided sufficient exemptions and protections for software developers.
“There is nothing worse for a business person than not having clarity, so we intend to be as clear as possible,” Mr. Lawsky said. “If it’s not clear enough, we will give examples. And if it’s still not clear enough, we will give more examples.”
Mr. Lawsky plans to stay at the agency until late June. An NYDFS spokesman said details of the license wouldn’t be affected by Mr. Lawsky’s departure.
Last month, leaders from some of the biggest bitcoin companies, investment firms and advocacy groups gathered in New York to hash out a list of concerns and draw the NYDFS’s attention to them.
Their concerns are amplified by expectations that this first-of-a-kind license will be a template for other states. Some state regulators are already applying existing money transmitter rules to virtual-currency businesses but many are expected to follow the lead of the country’s most important financial hub and set specific new rules for the sector.
Still, some industry leaders argue that New York risks “becoming the bitcoin backwater of the U.S.,” as MIT Digital Currency Initiative Director Brian Forde put it in a blog post that summed up the New York meeting’s recommendations.
In making such criticisms, bitcoin business leaders “are fighting for the rights of companies that do not yet exist,” said Fred Ehrsam, a co-founder of bitcoin exchange and consumer service provider Coinbase, who organized the New York meeting. He argues that the established bitcoin industry, including well-funded firms like his, benefits if startups are free to continue the sector’s hectic pace of innovation.
During the New York meeting, Mr. Ehrsam estimated it would cost Coinbase $2 million to fulfill all its licensing requirements around the country. In response, Fred Wilson, a partner at New York-based Union Partners, described such costs as a huge barrier to entry that encouraged venture-capital firms like his to concentrate on established players that were already well down that compliance path.
Bitcoin advocates were happy when a second BitLicense draft that was released in February rolled back stricter regulatory constraints contained in the first draft published in July. However, they continued to harbor specific concerns.
The bitcoin business leaders complained that the BitLicense’s anti-money-laundering provisions, as written in the February draft, could unfairly apply to all developers of so-called wallets, which are software applications that give people direct control over their bitcoins, whereas controls should only be imposed on those services with custody of customers’ bitcoins and dollars. The group also said the draft’s rule requiring NYDFS approval of updates to a provider’s software was impractical in an industry that makes product changes weekly.
Mr. Lawsky said such concerns were misplaced. “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.”
On software updates, he said, “We have 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.”
Mr. Lawsky also played down industry concerns that the rules would require some providers to apply for both a traditional money-transmission license and a new BitLicense. Describing this as 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.”
He also vowed to work with other states so that prior NYDFS approval of shareholder structure changes and other reporting requirements could help expedite approvals in those jurisdictions. “We have done a lot of work and hopefully we will be able to have some influence” over other state regulators, Mr. Lawsky said.
The BitLicense comes as interest grows on Wall Street in new applications for virtual currencies’ blockchain ledger technology. In the past month, Goldman Sachs Group Inc. invested in bitcoin consumer services company Circle Internet Financial, Nasdaq OMX Group announced a test of a new securities transfer system that would exploit the bitcoin blockchain’s real-time settlement capability and the New York Stock Exchange launched a new bitcoin price index.
Source: http://www.wsj.com/articles/new-york-soon-to-unveil-fresh-bitcoin-licensing-rules-1432231438
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