Benjamin M Lawsky, Superintendent of Financial Services at the New York State Department of Financial Services, has used a speech to the BITS Emerging Payments Forum in Washington DC to announce the release of New York’s final BitLicence Framework (*). In a brief speech, Lawsky summarised two years’ work on the new BitLicence, before talking about virtual and digital currencies in positive terms, and criticising the existing payment systems as “ossified” and “disco-era”.

Under the Framework, it will be unlawful to “engage in any Virtual Currency Business Activity … involving New York or a New York Resident”, without being licensed or exempt. However:

  1. Licensed businesses “…will not need prior approval for standard software or app updates – only for material changes to their products or business models. (A good example … would be if a firm that was licensed as a wallet service decided to begin offering exchange services. We have no interest in micro-managing minor app updates…)
  2. We have no intention of being a regulator of software developers – only financial intermediaries … innovators who are simply developing software and … not holding onto customer funds are not required to apply for a BitLicense…
  3. “…we are not going to require a duplicative set of application submissions for firms that want both a BitLicense and a money transmitter license. Firms will be able to cross-satisfy many of those license requirements… “;
  4. “…companies that already file suspicious activity reports … with federal regulators … do not have to file a duplicate set … with our agency. … we generally already have access to that information when we need it through information sharing arrangements …”
  5. “… companies also would not need prior approval … for every new round of venture capital funding. Generally, a company would only need prior approval if the investor wants to direct the management and policies of the firm … Large new investors (i.e. those with a 10 percent or more stake) would simply need to document and demonstrate that they are not going to have such a role. Additionally, under the regulation, simply because someone sits on a company’s board does not necessarily mean they are considered a control person“.

The Framework includes a transitional period for those who are already engaging in Virtual Currency Business Activities – such a person: “…must apply for a license … within 45 days of the effective date of this regulation … such applicant shall be deemed in compliance with the licensure requirements … until it has been notified by the superintendent that its application has been denied, in which case it shall immediately cease operating in this state and doing business with New York State Residents. Any Person engaged in Virtual Currency Business Activity that fails to submit an application for a license within 45 days of the effective date of this regulation shall be deemed to be conducting unlicensed Virtual Currency Business Activity“.

It’s not yet clear when virtual currency businesses will be required to begin to comply with the new law.

(* Under the Framework, “No Person shall, without a license …, engage in any Virtual Currency Business Activity“. For these purposes, “Virtual Currency Business Activity means the conduct of any one of the following … activities involving New York or a New York Resident:

(1) receiving Virtual Currency for Transmission or Transmitting Virtual Currency, except where the transaction is undertaken for non-financial purposes and does not involve the transfer of more than a nominal amount of Virtual Currency;

(2)  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 Exchange Services as a customer business; or

(5)  controlling, administering, or issuing a Virtual Currency.

The development and dissemination of software in and of itself does not constitute Virtual Currency Business Activity”.