The New York Department of Financial Services (NYDFS) has announced that it is considering creating a special type of transitional BitLicense tailored to the needs of small businesses and startups.
The special licensure would allow bitcoin startups that meet certain criteria to operate within a more flexible regulatory framework for a yet-to-be-determined period of time, during which examinations of the business would be conducted.
The formal announcement of the NYDFS’ shift in strategy came during superintendent Benjamin M Lawsky's keynote speech on the opening day of Money 20/20, an ongoing five-day conference to feature talks from other industry luminaries including Cameron and Tyler Winklevoss, Circle CEO Jeremy Allaire and Blockchain CEO Nicolas Cary, among others.
In prepared remarks, Lawsky framed his department’s decision as one that illustrates how the NYDFS is seeking to respond to criticisms it has faced from the bitcoin community during the regulation’s 90-day comment period.
“One issue that we heard about consistently throughout the entire comment period is a concern about the compliance costs of regulation on new or fledgling virtual currency enterprises ... There has to be a way for startups to start up and play by the rules without getting crushed by huge compliance costs.”
In addition, Lawsky announced that the NYDFS may also seek to designate a “small group of specialized examiners” that will oversee such companies and their license applications, and thereby help ease the burden for startups.
Lawsky went on to present a list of factors that the NYDFS may consider when deciding whether to grant its proposed Transitional BitLicense.
- Anticipated transactional and business volume
- The mitigating risk controls already in place (eg: a bond or other insurance)
- The nature and scope of the applicant’s business
- Whether the entity is registered with FinCEN as a money services business.
The NYDFS’ latest proposal, Lawsky added, was inspired by the host of letters his agency has received from the bitcoin community. Further, he remarked that he hopes the letters will soon be made public.
Lawsky remarked that he hopes the NYDFS will be able to “strike a balance” between maintaining consumer protections and enabling the bitcoin industry to grow.
“Our hope that innovative new companies – committed to doing things the right way – will want to do a lot of business in New York, the financial capital of the world,” he said.
Commitment to consumers
Throughout the remarks, Lawsky stressed that despite easing the burden for bitcoin startups, his department remains committed to protecting consumers from illicit activity.
“We cannot turn away from the vital task of preventing money laundering – which facilitates sometimes unspeakable crimes,” Lawksy said, striking a similar refrain as at the NYDFS BitLicense hearings this January.
Lawsky stressed that digital currency startups that engaged in misconduct would face significant penalties, and that all firms operating under any version of the license would have to meet strong anti-money laundering (AML) and capital standards. However, Lawsky suggested that there is a potential for startups to outsource such compliance risks, adding:
“We have faced similar issues among the smaller, community banks we regulate. We recognize that if a financial firm has 12 employees – and nine of them are compliance officers – that is not a winning business model."
Lawsky concluded by suggesting that the latest BitLicense revision would soon be made available for public comment and that a final version would be released this January.