China's 'Big Three' bitcoin exchanges, OKCoin, BTC China and Huobi, have joined forces to submit feedback to Benjamin Lawsky, superintendent of the New York State Department of Financial Services (NYDFS), regarding his agency's recent BitLicense proposal.
In a newly published open letter, the three companies criticized the broad reach of the regulations, stating they should only apply to businesses with meaningful connections to New York.
"While we are companies organized under the laws of the People’s Republic of China, we believe that it is not only appropriate, but also necessary for us to express our thoughts on certain aspects of the BitLicense proposal because the block chain protocol is decentralized, because regulations in New York have long been given great deference and are modeled after by regulators around the world, and because the BitLicense proposal as drafted appears to cover us."
The three exchanges had previously expressed their opinions on the matter in interviews with CoinDesk, demonstrating just how much of a global reach the US state law could have.
At the time, however, only OKCoin indicated that it would seek to submit a formal response to the NYDFS.
Under the proposals, any business that serves customers in New York would be subject to the BitLicense provisions, no matter how tenuous the association.
This would include giving the NYDFS access to all books and records from the company and its affiliates, even if the affiliate's business had nothing to do with New York or cryptocurrencies. Currently, this is not a requirement for regular money services businesses.
The proposals would also require any licensed business to perform 'enhanced due diligence' (EDD) on non-US customers, meaning non-US businesses would be required to perform EDD on customers in their own jurisdictions, but not on those in the US.
This is both time-consuming and ineffective, the Chinese companies said.
Forcing business abroad
The proposed rules are a pertinent issue at a time when the China-based exchanges are increasingly seeking to capture the broader, global US dollar market, which has several regulatory walls of its own.
A BTC China spokesperson told CoinDesk the company "would need to possess a very strong business case" to justify the company applying for a BitLicense under the current proposals. They also acknowledged that businesses in China "face similar challenges".
"It is extremely difficult to comply with the regulation as written, and may force us to avoid doing business with 'New York persons' or avoid the US entirely. The greatest concern is that other regulators in the US and around the world will follow New York state, which would be very damaging to the industry."
BitLicenses, if enacted unmodified, would dampen interest in doing business in the US and reduce willingness to work with US companies, they added.
A statement from Huobi said it would be "extremely difficult to comply", and expressed concern that regulators in other countries may follow New York's lead.
"The reason why we feel the need to [make the statement] is because Huobi is an international platform, and bitcoin regulation in the US will definitely affect our plan of expanding in America directly. Moreover, we believe there will be direct influence to Chinese regulation because the Chinese government watches closely BitLicense in NY [...] Huobi definitely wants to expand our legitimate business in the US but also needs a flexible bitcoin environment."
Huobi would "geofence" New York and not apply for a BitLicense if the proposal was enacted, the statement concluded.
OKCoin's manager of foreign operations, Zane Tackett, said:
"We feel that it was important to release a unified statement because the regulations implemented in New York will likely be used as a model for other states and countries alike. Especially since we've started the rollout of our international exchange these regulations – if implemented – will have broad effects on how we operate. It is important to try and help the NYDFS draft the best possible BitLicense for both users of bitcoin, and the state itself."