New York’s proposed Bitlicence is now one step closer to reality.
On 23 July 2014, the New York State, Department of Financial Services (DFS) said that it was proposing to adopt a Bitlicencing regime. Draft legilsation was published for consultation, and many responses were received. At the end of December 2014, the DFS published Superintendent Benjamin Lawsky’s initial response: the regime would be amended, and published for further consultation. The second consultation began on 4 February 2015, and it will close at the beginning of March. A final version of the Bitlicence regime is expected after that.
Under the July 2014 version of the DFS Bitlicence, “virtual currency businesses” established in New York State would have to be licenced to carry on their business; and the licence would have subjected them to a heavy compliance burden. Many of the responses to the original consultation expressed concern about the broad application of the proposed regime. Consultation respondents were also concerned about the risk that the licensing regime would cause start-ups to incur prohibitive compliance costs, and that that would make it harder for new players and new technologies to enter the market.
The DFS has (at least partially) addressed these concerns by providing specific carve-outs from the full regime. In particular, software developers who only engage in developing and disseminating software as an activity in and of itself will not require a Bitlicence. Similarly, Bitcoin 2.0 related companies which transfer nominal amounts of Bitcoin for non-financial purposes have been specifically carved-out. These Bitcoin 2.0 companies utilise the Blockchain technology for non-currency related purposes and thus the DFS is not concerned with their regulation. The revised regime also includes a “conditional licence” that will allow start-ups to operate legally with a Bitlicence even if they don’t satisfy all of the requirements of the full Bitlicence. Whilst this conditional licencing program is a step in the right direction, the granting of such licences and the conditions attached to them are at the sole discretion of the DFS Superintendent. This lack of certainty is likely to be a major concern for the virtual currency start-up industry.
For more information on the revised Bitlicence regime and its requirements, please see our client alert on the global Regulation of Virtual, Digital and Crypto-currencies.