The fight over New York State’s “Bitlicense” proposal continues unabated as the Bitcoin Foundation pressures the state’s Department of Financial Services to follow its own rules.
When the proposal was first released last July, the New York Department of Financial Services (NYDFS) ordered a waiting period to allow for public comments. This window was to run from July 17,2014 and recently extended to October 20, 2014 and allow the public to examine the “extensive research and analysis” that was supposedly used when drafting the proposal.
The Bitcoin Foundation, in an attempt to understand the evidence and rational behind the proposal, has made more than one attempt to access this information but has so far been unsuccessful.
The proposal itself says the Foundation is highly questionable. The first question to arise is why Bitcoin has been singled out for these regulations, some of which do not even apply to traditional finance. A good example is the requirement that businesses accepting Bitcoin report all transactions, regardless of the amount. This can be extremely limiting for merchants who wish to accept Bitcoin and give a huge advantage to banks and credit card companies who are only required to report transactions of more than US$10,000.
The deadline is fast approaching and nothing has been released by the NYDFS, despite promising the documents when the Bitcoin Foundation requested them on August 5, 2014. The preliminary comment to the Department requested “copies of any risk management and cost-benefit analysis (or other systematic assessment) that is part of the ‘extensive research and analysis’ referred to in the statement of needs and benefits for the proposed regulation.”
When the request was received by the Department, they promised the Bitcoin Foundation delivery “within 20 days.” Instead, the NYDFS told the Bitcoin Foundation on September 9, 2014, and informed them that delivery would not be made until sometime in December, more than a month after the end of the comment period.
The Bitcoin Foundation believes that some regulation is necessary for Bitcoin and other Virtual Currencies and that they would actually serve to strengthen the Bitcoin ecosystem, helping New York consumers, businesses and the financial markets by inspiring confidence in the decentralized currency.
Jim Harper with the Bitcoin Foundation’s Global Policy Council writes about the Foundation’s support of constructive regulation:
“The sacrifice of some decentralization in furtherance of other benefits to the Bitcoin ecosystem must meet a high burden of proof. Nobody should want a regulation that sacrifices Bitcoin’s benefits if doing so produces unknown or merely speculative benefits for New York consumers of the New York financial services marketplace.”
The Bitlicense proposal is controversial for a number of reasons. Besides being constructed in such a way that it overly burdens a new industry in favor of more established interests, it is contrary to what most Federal and state agencies are proposing, which is to integrate Bitcoin into existing regulations.
This includes agencies such as the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN), the U.S. Internal Revenue Service, the U.S. Federal Election Commission, the Texas Department of Banking, and Kansas’s Office of the State Bank Commissioner. None of these agencies have even suggested industry specific regulations, instead preferring to use existing financial laws. Harper cites other problems as well:
“The language of the ‘BitLicense’ proposal would apply non-financial uses of Bitcoin’s public ledger, including communicative and expressive uses. This would run afoul of U.S. constitutional protections against regulation of speech.”
The Constitutional protections that Harper is referring to are the Fourth Amendment’s protection against unreasonable search. The onerous reporting requirements amount to unreasonable financial surveillance and accounting.
“A regulatory regime that is markedly out of step with others is very likely to create inefficiency in national and global markets, which would suppress competition, hamper the delivery of benefits to consumers and frustrate consumers,” concludes Harper. “New York is a very special state, but we recommend that it join the national and global community of regulatory bodies that are taking a methodical, iterative approach to Bitcoin business regulation.”
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