Two weeks after his agency held extensive hearings on the subject of regulating virtual currencies, New York Department of Financial Services (NYDFS) superintendent of financial services Benjamin Lawsky has issued statements that provide greater insight into the actions the state may take when it seeks to enact bitcoin legislation this year.
Most notably, Lawsky indicated that the NYDFS now feels as though existing money transmission regulation will not be sufficient for virtual currency firms.
Further, he suggested the NYDFS could move to mandate that all virtual currencies maintain a public block chain due to its potential to help track criminal wrongdoing, and that bitcoin businesses that qualify as money transmitters could be made to comply with certain net worth and permissible investment requirements.
Speaking at the New America Foundation in Washington DC, Lawsky said:
"As we have noted previously, certain aspects of virtual currency do not fit neatly into the traditional categories we think of in financial regulation – such as banking, insurance, or the like."
Lawsky continued his organization's friendly approach to addressing the ecosystem, adding asides to his remarks that noted the benefits virtual currencies could bring to the ecosystem and the ongoing problems in the traditional financial system.
A starting point for regulation
Despite earlier comments that indicated that NYDFS would look to enact regulation for wallets and exchanges, the places where virtual currencies are exchanged for fiat, Lawsky seemed less certain about this action in his statements. He also acknowledged that the ability for the NYDFS to put in place the more extensive oversight desired by law enforcement officials would be limited.
For example, he noted that overseeing every transaction on the network would likely be impossible, and mentioned that the NYDFS will heed FinCEN's guidance to leave individual miners without any oversight, though it expressed an interest in this area.
In addition, Lawsky indicated that his agency is not as concerned with bitcoin's potential for money laundering.
"Let’s be frank, a lot more money has been laundered through large banks than has been laundered through virtual currency."
Safety and soundness requirements
To help increase safety in the ecosystem, Lawsky noted that virtual currency firms will likely be made to meet similar requirements as traditional money transmitters.
Specifically, he noted that such firms are "limited in the types of investments they can hold", so as not to put consumers in jeopardy, and that they may need to hold enough capital to provide safeguards against industry turbulence. Said Lawsky:
"Net worth, capital and permissible investment requirements are among the most important consumer protection requirements we can put in place as regulators."
Lawsky reiterated that stronger consumer protections were needed for virtual currency firms, especially as the industry grows and less experienced and less knowledgeable consumers enter the industry.
"If virtual currencies ultimately garner wider adoption among the general public, it will be important for consumers to be armed with the information they need to make the financial choices that are best for them," Lawsky said.
In particular, he noted consumers should be warned that all bitcoin transactions are irreversible and that the loss private keys could jeopardize their funds.
However, despite the comments, it should be noted that the NYDFS has yet to announce a formal timeline for any decision-making. For a more extensive overview of the NYDFS hearings as well as the community reaction, read our full report here.
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