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Dozens of Bitcoin companies have commented on the BitLicense proposal, but what does a regulatory compliance company think about it?
Art by Jing Jin
When New York's Department of Financial Services (DFS) released the details of its BitLicense proposal, it made it clear that it wanted input from the industry. They even caved to pressure and doubled the original comment period, which now runs until October 19th.
If they were expecting a negative reaction from the Bitcoin community, they got it. But the Bitcoin community and related businesses might not be their primary concern. They may be more concerned with what other companies, outside of the current Bitcoin ecosystem, think about the coming regulation.
Strevus seems like one of the companies they might be interested in listening to. They are in one of the few indusries that will likely have to deal with Bitcoin regulation one way or another, without being dependent on Bitcoin itself: regulatory compliance.
So it would be prudent for us, as a bitcoin community, to pay attention to what they have to say.
Showcasing their knowledge of constructive criticism 101, Strevus started by applauding the NYS DFS for taking the lead in Bitcoin regulation in the United States and for their stated goal of not impeding on the innovative aspects of Bitcoin technologies while preserving “national security.” But then jumped into what they think would be appropriate regulation on Bitcoin companies.
“[DFS Bitcoin Regulations need to be] no more burdensome than New York’s Money Transmitter law nor the Federal AML laws. They should ensure such regulations preserve and protect those unique aspects of digital currency that aren’t susceptible to traditional regulatory efforts and offer an appropriate safe harbor to ensure the continued viability of the digital currency industry.”
They then lay out specific areas where they think the DFS BitLicense regulation may be more stringent than current traditional financial regulations and how the regulation fails, in their mind, to consider the various innovations brought on by blockchain technologies.
Strevus has three main points of contention where it thinks the BitLicense regulation is more burdensome than regulation put on traditional financial companies: CTR reporting, SAR obligations and “the nearly technically impossible obligation to require reporting on 'all parties to the transaction.' As we all know, the Bitcoin framework explicitly divorces itself from the identity of the parties to effectuate a bitcoin transaction.”
Additionally, they contend that the proposed regulation is more burdensome on businesses than current Federal AML law, in particular its section on Enhanced Due Diligence reporting, which it says depends too heavily on the geography of parties involved.
It is also argued in the paper that the regulation will be difficult or impossible to follow without taking away from the features that make the Bitcoin network unique and powerful.
“It’s simply not possible to square the DFS objective to preserve and protect the unique characteristics of bitcoin with an obligation to report identities of all parties to a transaction in the currently open network that characterizes the bitcoin framework.”
Strevus then goes on to explain a few modifications that could be made to the Bitlicense or used in replacement legislation, including the addition for regulatory safe-havens for new Bitcoin startups, something they say have been used to protect new industries in the past.
When reached out for further comment, Strevus CEO and cofounder Ken Hoang gave us this:
“In order to establish stability in the digital currency market, financial institutions need to engage in high-volume trading of the new asset. However, they won’t do that until there are regulations in place to protect their customers, their business and the industry. North American regulatory activity around KYC and AML guidelines for digital currency may serve as the yardsticks that will influence global regulation. This includes BitLicense (New York State’s Department of Financial Services), FinCEN (U.S. Department of Treasury’s Financial Crimes Enforcement Network) and Bill C-31, a new Canadian law that is enforced by Canada's Financial Transactions and Reports Analysis Centre (FinTRAC).
It is important to note, that this may have a more powerful affect than a Bitcoin company saying the same thing. Strevus' business model is regulation compliance. While they would likely disagree publicly with this statement, companies like theirs gain something from increased regulation. If the world were an anarchist/libertarian dreamworld, there wouldn't be much of a market for them.
However, even they can see what is clearly in front of everyone's face: the BitLicense proposal would decrease or eliminate Bitcoin businesses in the state. Some regulation might be good for Strevus' bottom line, but regulation that chokes out business all together doesn't help them or anyone else.
Of course, any mention of regulation is likely to draw the ire of some in the bitcoin community. That said, this seems to be a sensible compromise. Regulation might not be preferable, but it is coming. Counter-proposals like Strevus' will be crucial in coming to an agreement both the community and government can live with.
We asked Will Pangman, Chief Communications Officer at Tapeke, what his thoughts on Strevus' counter-proposal are:
"In reading through [the Strevus comment], I'd surmise that if the middle-of-the-road approach to regulation is your thing, then this comment stands the best chance of effecting the NYDFS in that direction of any I've seen thus far."
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