Developers, miners and individuals using bitcoin will generally not be regulated by the impending ‘BitLicense’ proposals, according to Benjamin Lawsky, superintendent of the New York Department of Financial Services (NYDFS).
Speaking at the Benjamin N Cardozo School of Law, New York, Lawsky clarified that many individuals and companies working within the bitcoin space will not need regulatory approval or a BitLicense to operate in New York State.
“We are regulating financial intermediaries. We are not regulating software development,” he said, adding:
“To clarify, we do not intend to regulate software or software development. For example, a software developer who creates and provides wallet software to customers for their own use will not need a license. Those who are innovating and developing the latest platforms for digital currencies will not need a license.”
However, Lawsky stressed that companies involved in safeguarding customers’ money will not be exempt. “We do not, for example, let someone run a bank out of their garage,” he said.
Banking and tech ‘collide’
According to Lawsky, the banking industry and the tech industry are starting to “collide” and create new challenges for regulators.
The NYDFS was forced to operated with money transmitter regulations drafted at a time when there was no Internet or cryptocurrencies, he said, explaining that the department has an obligation to license and regulate such companies.
On a positive note, Lawsky said the NYDFS quickly recognised the potential of block-chain technology:
“As we began looking at bitcoin last year and getting deeper into it, we began to see the power of the technology that underlies it.”
The technology has the potential to provide cheaper fees and remittances, he said.
New York residents who send money abroad usually pay fees of 8-9%, while digital currencies could operate with fees of about 1%, Lawsky pointed out. Digital currencies do not require people to disclose their credit card information and offer faster transactions, he added.
Lawsky clarifies provisions
The NYDFS started working on the first controversial BitLicense drafts following the fall of Mt Gox, earlier this year, said Lawsky.
The comment period for the original proposal was extended following requests from industry leaders. The revised proposal will take those comments into account and, once published, a new comment period for the revised regulation will begin.
He made it clear that the NYDFS does not intend to request more than once license for digital currency businesses and, in most cases, they will not have to obtain money transmitter licenses. Like developers, individual bitcoin users will not be affected by the regulation.
Lawsky went on to dismiss a number of criticisms of the original proposal as unsubstantiated, saying they were the result of misunderstandings.
One complaint alleged that banks would not have to comply with the new regulatory framework, but that is only true if banks do not choose do deal in digital currencies, he explained.
Regulation with benefits
Lawsky also addressed speculation regarding the department’s position on bitcoin mining:
“Mining per se will not be regulated. To the extent the miner engages in other virtual currency activities, however – for example, hosting wallets or exchanging virtual currency – a license may be required for those activities. For mining itself, there will be no license requirement.”
The NYDFS will also try to keep compliance costs down, he said, thus allowing startups to thrive.
In his speech, Lawsky conceded that some companies may choose to operate from unregulated jurisdictions to avoid the state’s regulatory requirements, but if they chose to do so, such companies may end up sacrificing competitiveness.
He explained:
“Our hope is that companies recognize, or at least some of them do, that appropriate, effective regulation will help create a race, not to the bottom, but to the top; that it will foster greater confidence and trust from both customers and investors who want to do businesses committed to customer protection. That will spur a cycle of greater adoption of virtual currencies.”
It is possible to innovate, play by the rules and make a profit at the same time, he concluded.