Finalized in June of 2015, New York’s BitLicense regulation was heralded as a potential boon for an industry then struggling to shake its stigma as the unregulated ‘Wild West’ of the financial industry.
More than six months after the deadline for application filings, however, the New York State Department of Financial Services (NYDFS) has yet to emerge as a regular newsmaker in the industry. The NYDFS has only issued one BitLicense under the regulatory framework, which it provided to bitcoin services firm Circle in September 2015.
According to figures provided to CoinDesk by the NYDFS, this means as many as 21 industry startups are now operating under the BitLicense’s safe harbor provision, but waiting for a formal confirmation that they are licensed bitcoin services providers in New York.
Even some of the industry’s more well-funded applicants, such as bitcoin exchange Coinbase and bitcoin storage specialist Xapo, indicated that their applications are still being processed.
In conversations with CoinDesk, applicants reported varying degrees of interaction with NYDFS officials, with some indicating they have not been provided much clarity as to the status of their application and others lauding the regulator for its efforts to help them ensure they have provided the requisite details for approval.
A spokesperson for the NYDFS indicated the department is potentially close to awarding new licenses, but that the relatively new nature of the technology is a factor in why more applications have yet to be approved.
NYDFS executive deputy of communications Richard Loconte told CoinDesk:
“Applicants vary very, very widely, in terms of the type of applicants and information provided. We’re working with many applicants, rather than outright rejecting them, to provide information we need.”
Loconte contrasted this developing process with other licensed sectors, which have established pipelines and a steady stream of applicants. He suggested the high initial number of applications has created a backlog, that he believes will lessen over time.
Startups involved in the application process offered similar remarks, indicating that both sides see eye-to-eye on many current issues.
“The BitLicense is really the first of its kind, so it’s hard to compare this process to that of any other,” Sheffield Clark, managing partner at bitcoin ATM network CoinSource, said.
Among the companies that publicly indicated they had applied for licenses, most were complimentary when discussing the application process.
Nejc Kodrič, CEO of digital currency exchange Bitstamp, reported to an initial period of silence but said communication has “not been a problem”.
Elsewhere, Patrick Manasse, chief compliance officer at bitcoin exchange MonetaGo, reported that, while sometimes stressful for all involved, the process is moving forward professionally and with respect on both sides.
“They could require anything, that every user has to have a blood test. It could be crazy, but they understand that’s not their job,” Manasse said. “It’s to help provide a safe and efficient marketplace, and it comes through in the way they’re dealing with companies.”
For example, Manasse said that the NYDFS has allowed MonetaGo to send portions of the application process as they are completed, a development he said helps make the process more accommodating to a startup environment.
Still, applicants wishing to remain anonymous suggested there is some confusion over the state of the filing process, and described the process of providing additional information as a ‘hassle’ for their teams.
In January, Kraken founder Jesse Powell said the cost of a BitLicense wasn’t yet worth the benefits of doing business in New York. When Powell’s company acquired New York City-based Coinsetter for an undisclosed amount he said the company’s pending BitLicense would not transfer, and he had no intention of reapplying.
Some commentators suggested they believe that the lack of approvals is the result of a string of departures from the NYDFS to the private sector.
Loconte, however, dismissed this criticism, stating that he doesn’t believe this slowed down an application process due to the fact that delays in any new process are unavoidable.
“The team that is in place to handle the applications is the same team, by and large,” he added. “I don’t think that slowed down the application process.”
Importance of safe harbor
Others sought to portray wait times for licenses in New York as evidence that the policies the BitLicense enacted are working as designed.
Former deputy general counsel for the NYDFS Dana Syracuse, now counsel at BuckleySandler LLP, for instance, said that the process so far does not differ from traditional money services business (MSB) licenses.
Syracuse said that any perceived delays are likely the result of the back and forth that can be necessary to ensure applicants have provided the NYDFS with all information necessary for the agency to complete and evaluate the submission.
Further, he suggested any delays have been offset by the inclusion of a safe harbor that allows applicants to operate while they await approval.
“To me, the important part of this story is the fact that the BitLicense contains a safe harbor that said as long as you were in by a set date, you were able to continue operations, and that there was ample warning to pull out of New York,” he said, adding:
“I think other state regimes need to have similar language, because the licensing process is something that takes time.”
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