Just in time for the closing of the comment period for New York State’s ‘BitLicense’ proposal today, bitcoin companies Circle and BitPay managed to have the final say on the matter – for now.
In their comments, both companies expressed a number of similar concerns over the BitLicense, specifically provisions they perceive as burdensome regulation that could stifle competition and innovation
The BitLicense initiative was launched by the New York Department of Financial Services (NYDFS) earlier this year and has been championed by NYDFS superintendent Ben Lawsky since then.
The initial proposal, drafted following the NYDFS hearings on bitcoin in January 2014, proved controversial and has been criticised by many bitcoin businesses and advocates in recent months. Although Lawsky tried to clarify some of the provisions and downplay concerns, many bitcoin companies still remain sceptical and concerned over what the BitLicense might mean for their business.
Bitcoin services company Circle said in its comments that numerous aspects of the proposal would negatively impact consumers and businesses that wish to use digital currencies, describing some proposed rules as “nearly impossible to comply with”. The firm added that it would have no choice but to leave New York if the regulations come into effect in their current state.
The proposal, Circle said, casts a wide net over regulated digital currency firms due to its broad definition of what constitutes a Virtual Currency Business Activity (VCBA).
The company described the anti-money laundering (AML) provisions of the proposal as unnecessary and impractical. It went on to note that the NYDFS would be given “too much discretion” over business choices and that there are still unanswered questions about the applicability of new rules to digital currency firms.
Bitcoin payments solutions provider BitPay identified four key areas of the BitLicense as problematic, arguing the proposal “lacks innovative rule making” and will therefore deter job creation, while at the same time creating an “unlevel playing field” compared with other payment methods.
The proposal, the firm said, also lacks clarity with regard to ancillary bitcoin-related activities and disregards existing AML frameworks.
Alternative approach suggested
In its conclusion, Circle argued that the NYDFS should coordinate with other regulators and make sure that its proposal is in line with rules elsewhere.
“In particular, we believe the NYDFS should be working closely with the Conference of State Bank Supervisors (CSBS) and the Emerging Payments Task Force to develop uniform rules that do not only apply to digital currency firms, but all money transmitters,” Circle said.
The applicability of proposed rules to digital currency firms was questioned on more than one occasion, with Circle arguing that existing state money transmitter regulations should be amended to address risks associated with digital currency transactions.
Circle further pointed out that the BitLicense proposals could end up unfairly targeting bitcoin companies solely due to their use of block-chain technology:
“At the very least, we encourage the NYDFS to develop a regulatory framework that maintains a level playing field by establishing similar guidelines for both digital currency firms and other money transmitters. There are several areas in the proposed rule that go well beyond what is required for other money transmitters.”
Circle’s position is echoed by BitPay, with the payments processor also concluding that the new regulation could result an unfair and burdensome requirements for bitcoin companies.
The firm urged the NYDFS to eliminate the need for ID data to be collected for each transaction and eliminate the need for identification for large transactions. BitPay argued that Broadway merchants do not collect such information for each transaction, while upscale 5th Avenue cash merchants do not require shoppers to present identification even when they make big purchases.
BitPay also criticised the proposal’s failure to take into account existing local, national and international AML frameworks. Additionally, the company criticised the ambiguous wording of the proposal with regard to ancillary bitcoin activities, saying that the definition of a VCBA is too broad.
The current proposal could affect developers, backup services, data escrow services and a range of other businesses that should not be covered by the new rule, said BitPay.
Ball in Lawsky’s court
Ben Lawsky recently clarified some of the BitLicense provisions, specifying that bitcoin developers, miners and general users will not be governed by the BitLicense regulations.
Lawsky said only those developers and miners who decide to get involved in regulated activities, such as money transmitting, wallet hosting and exchange operations, will have to be licensed. He also dismissed much of the criticism of the proposals as unfounded.
However, many other concerns raised by bitcoin companies and the Bitcoin Foundation have yet to be addressed and incorporated into the proposal.
In a recent interview with CoinDesk, Lawsky made it clear that the NYDFS cannot risk getting bitcoin regulation wrong and that digital currencies have a bright future in New York.
The comment period for the BitLicense proposal was extended due to public interest and requests made by several organisations. While the industry welcomed the extension, the Bitcoin Foundation was critical of the New York Department Financial Services (NYDFS) over its failure to produce research data and analysis cited in the proposal.
It should be noted that the NYDFS plans to issue a new proposal, which will be accompanied by a new comment period, allowing for more feedback from the industry and community.
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