NY DFS Releases Proposed Licensing and Regulatory Framework for Virtual Currency Firms
The New York Department of Financial Services ("DFS") released a draft proposal for licensing and regulating virtual currency businesses like Bitcoin.The proposed "BitLicense" regulatory framework contains consumer protection, anti-money laundering compliance, and cybersecurity rules tailored for virtual currency firms.
The new DFS BitLicenses would be required for firms engaged in virtual currency businesses including:
- receiving or transmitting virtual currency on behalf of consumers;
- securing, storing, or maintaining custody or control of such virtual currency on the behalf of customers;
- 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;
- buying and selling virtual currency as a customer business (as distinct from personal use); or
- controlling, administering, or issuing a virtual currency.
Mercatus Scholar Jerry Brito Comment:Whether one likes it or not, states will want to license and regulate Bitcoin-related businesses, so it's good to see that New York engaged in a thoughtful process, and that the rules they have proposed are not out of the ordinary. That said, I'm glad DFS will be accepting comments on the proposed framework because there are a few things that can probably be improved or clarified. For example, licensees would be required to maintain "the identity and physical addresses of the parties involved" in "all transactions involving the payment, receipt, exchange or conversion, purchase, sale, transfer, or transmission of Virtual Currency." That seems a bit onerous and unworkable. Additionally, the definition of who is engaged in "virtual currency business activity," and thus subject to the licensing requirement, is quite broad. It has the potential to swallow up online wallet services, like Blockchain, which are merely providing software to their customers rather than administering custodial accounts. In order to grow and reach its full potential, the Bitcoin ecosystem needs regulatory certainty from dozens of states. New York is taking a leading role in developing a regulatory structure and the path it chooses will likely influence other states. It is important to make sure that New York gets it right.
See: Mercatus Commentary; Jerry Brito's Full Comments (from techliberation.com).