The New York State Department of Financial Services (NYDFS) released the final version of its long-awaited regulatory framework for digital currency companies today.
The final release of the BitLicense follows nearly two years of fact-finding and debate. The NYDFS began crafting the rules after it determined the technology should not be regulated under existing state law.
The bill will not become law until its publication in the New York state register, a weekly government-issued guide to proposed rulemakings.
Agency approval
In remarks issued by NYDFS at the BITS Emerging Payments Forum in Washington, DC today, superintendent Benjamin Lawsky clarified that the final regulation meant firms will no longer need the agency’s approval for each new software update or round of venture capital funding.
Additional changes include the fact that companies can now satisfy BitLicense and money transmitter license requirements simultaneously with a “one-stop” application submission.
Overall, Lawsky was tepid in his optimism about the technology, reiterating past statements that suggest he believes bitcoin or other decentralized blockchain technologies could bring about needed change in the financial sector:
“We are excited about the potential digital currency holds for helping drive long-overdue changes in our ossified payments system. We simply want to make sure that we put in place guardrails that protect consumers and root out illicit activity – without stifling beneficial innovation.”
Limited changes
As indicated by Lawsky in his speech, edits to the final version of the release are limited to section 200.10. This section aims to clarify when businesses working with digital currency would need approval from the NYDFS for certain actions, or ‘changes’.
In the latest version, a change is defined as something “proposed to an existing product, service, or activity that may cause such product, service, or activity to be materially different from that previously listed on the application for licensing by the superintendent”.
This includes instances that present legal or regulatory issues as a result of the update or if the update raises safety concerns.
Lawsky said:
“We have no interest in micromanaging minor app updates. We’re not Apple.”
The sparse nature of the changes marks a shift from the last revision to the law. Released in February of this year, the revised BitLicense included new exemptions for software providers, enhanced supervision requirements and altered many definitions used in the NYDFS’ initial draft.
Notably absent were several proposals put forth by the digital currency community, including exemptions for entities working on open-source protocols and micropayments, alongside a 24-month safe harbor period for early-stage startups.
Turning back the clock
Elsewhere Lawsky used the speech, one of his last before his exit from the agency this summer, to caution regulators against repressive regulation that attempts to “turn back the clock” for new technologies.
“Attempting to force novel technologies and business models into existing regulatory boxes – simply because ‘that is the way it has always been done’ – may not be a sensible approach. We need, at times, to be more creative than that as regulators – even if it takes us outside our comfort zone,” Lawsky continued.
The final release comes amid a time of increasing discussion regarding how digital currencies should be regulated at the state level in the US in absence of federal laws.
‘Early innings’
Though Lawsky was positive in his remarks on the technology, his speech also took aim at the tech community and its obligation to regulators. He said:
“Technologists also have a responsibility of their own to meet. They cannot simply ignore the rules they do not like and try to create ‘facts on the ground’ … generally speaking, consumer protection rules exist for good reason.”
Technologists have the right to put pressure on regulators should they believe laws to be misguided, he added, but this should not come at the cost of eroding the provisions that limit harm.
This balance was highlighted in Lawsky’s statements that the law seeks to only apply to “financial intermediaries” and not software providers.
“There is a basic bargain that when a financial company is entrusted with safeguarding customer funds and receives a license from the state to do so – it accepts the need for heightened regulatory scrutiny to help ensure that a consumer’s money does not just disappear into a black hole,” he added.
Still, Lawsky stressed this debate is still in “early innings”, predicting that a “collision” between regulators and the financial technology was only beginning. He concluded:
“Both sides – regulators and technologists – could benefit from taking a moment and trying to put themselves in the shoes of their counterpart across the table.”
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