The New York Department of Financial Services (DFS) has updated its proposed Bitcoin regulation known as the BitLicense. Ben Lawsky, the new department's first superintendent, held a press conference after a group chat on the future of payments, discussing the changes and other issues affecting New York's financial regulatory body.
Lawsky first clarified a few things about the BitLicense in its original form. He pointed out that the regulations did not apply to individuals holding Bitcoin for personal investments, or to software developers, currency miners, promotional or “reward” points denominated in fiat currencies, or merchants.
The new proposed rules slightly lower the requirements for Bitcoin-based businesses. These changes, Lawsky says, came about due to comments regarding the BitLicense during its extended comment period. The know-your-customer (KYC) regulations have been lowered, eliminating the need to know the names and addresses of every party involved in the transaction. Lawsky said that this regulation is “not workable” in the virtual currency space. Companies will still be required to keep that information on their customers and are asked to find out the other party's information whenever possible.
The other significant change lowers the time frame for which companies are required to hold onto records, from a proposed ten years to a slightly less lengthy seven.
Lawsky and the DFS's changes to the proposed regulation could be seen as a fig-leaf offering to the Bitcoin community. The original BitLicense proposal was unpopular, to say the least, with Bitcoin enthusiasts. His speech also seemed more favorable in rhetoric than we had heard from government agencies in the past.
Rather than focusing on the negative aspects of Bitcoin, Lawsky instead talked about how it could bring competition to the money-transferring market that he said, thanks to a “monopoly-like” atmosphere, is failing to innovate.
He stated that he saw two ways of fixing it and compared it to the railroad system. The current financial system, he said, is akin to an aging, out of date and slow railroad system. Things like Apple Pay and PayPal represent improvements to that legacy system, but Bitcoin is a brand new system. A new system has its advantages, but requires a lot of work. At one point, Lawsky compared the banks to Blockbuster Video and called the Automated Clearing House (ACH) a “disco-era system.”
Still, the loosening of regulation and the consolatory tone is unlikely to ease the concerns of the Bitcoin faithful, who have become accustomed to operating without regulation. Interesting to note, Lawsky stated that at this time last year, they had expected to announce their first draft of the BitLicense in early 2015. He cited the Mt. Gox scandal as one reason why they had accelerated their timetable.
We spoke to a few experts in the Bitcoin space to gauge their initial reaction.
Dan Metclaf of XCurrency and BlockNet expressed that, while the updated regulation is a step in the right direction, he would prefer to see governments be more cautious with the potential effects of their decisions.
“I believe the updated clarification about retails, miners and developers is a positive thing, and while I agree that very limited regulation is needed, it needs to be done methodically, step by step and not rushed into.”
We also spoke to Trace Mayer, (@TraceMayer) host of the Bitcoin Knowledge Podcast. He gave us these thoughts:
“I think the updated BitLicense proposal is on the right track by (1) carving out additional participants who would not be affected, (2) making provisions for capital reserves to be held in virtual currencies since that type of working capital is essential for many business models and (3) providing the two-year startup partial exemption. However, I am not sure New York playing catch up will provide the fertile regulatory climate needed to retain and attract Bitcoin related startups.
“For example, in October, I participated in a panel at the British Consulate, and at Money 20/20, I interviewed Brian Donegen from the Isle of Man government. Both jurisdictions, along with Singapore, Hong Kong, Netherlands, Texas and others, are taking an extremely friendly regulatory posture towards blockchain technology, with the Isle of Man slated to pass regulations in January, and actively courting Bitcoin-related businesses.
“So, I think Lawsky's steps may be more in the right direction than before, but there will be many unintended consequences. I have helped fund Bitcoin companies that have created more than 100 new jobs and only 1-2 of those have been in New York. Due to these increased Bitlicense burdens therefore as an investor I want any businesses I consider investing in to continue avoiding the rather small but costly New York market like the black plague and instead create sustainable jobs in the more friendly jurisdictions.”
Jaron Lukasiewicz, CEO of prominent Bitcoin Exchange Coinsetter, based out of New York City, also added:
“Most bitcoin companies are breathing a small sigh of relief today from Lawsky’s remarks on the revised BitLicense regulations. It’s encouraging to see achievable goals become a centerpiece to this licensing regime.”
The New York DFS is accepting comments on the updated proposed regulation. We will have more on the BitLicense as its final draft is released and the regulation moves closer to being enacted.
Did you enjoy this article? You may also be interested in reading these ones: