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More than 3,700 individuals, groups, and companies have submitted comments regarding New York State’s novel proposal to regulate virtual currencies. A Digital Transactions News sampling of comments from payments organizations about the so-called “BitLicense” shows they want more clarity in definitions and exemptions from some proposed licensing requirements.
New York’s Department of Financial Services (DFS) this week released the comments on its Web site. All were submitted between July 24 and Oct. 21. More are expected in the wake of pending revisions in the original BitLicense proposal that DFS Superintendent Benjamin M. Lawsky unveiled in July following a nearly year-long investigation into new forms of electronic money. The regulations, intended to prevent fraud on consumers, remain under development even as Lawsky reportedly is preparing to exit state government for the private sector, according to press reports.
The Electronic Transactions Association, the national merchant-acquiring trade group, said in its seven-page commentary that “the scope of the definition of virtual currency needs to be carefully crafted so that it clearly excludes services and products not intended to be covered.” The Washington, D.C.-based ETA explained that “a number of our members share a common core of concerns. They are engaged in activities such as affinity or rewards programs or in online-gaming platforms, and read the proposed regulations as potentially (and, we suggest, inadvertently) including their activities.”
The ETA also asked that exemptions from the proposed virtual-currency licensing requirements be amended to include payment processors and gateways as well as licensed money transmitters, the latter of which already are subject to various regulations. The ETA urged New York to follow the precedent set by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCen), which has said entities such as processors and gateways are not money transmitters. Processors, the ETA wrote, “have a critical responsibility in the payments chain” by routing transactions, but they do not contract with consumers for money-transfer services.
The ETA further urged that New York maintain “a level playing field in payments…overly proscriptive regulations raise barriers that stymie growth of jobs and innovation.”
Ripple Labs Inc., creator of an open-source protocol for accounting for financial balances that enables payment in any fiat or virtual currency, including the Ripple-developed XRP currency, wrote that the original BitLicense proposal “defines ‘virtual currency’ and ‘business activity’ in broad terms. As a result, the existing draft likely sweeps up business activities that NYDFS does not intend to regulate or that it already regulates.” Those activities could include software development, according to Ripple.
The DFS, however, has recognized this potential problem, Ripple said. “We appreciate that NYDFS intends to revisit the definitions to make sure that software development is not covered,” the company’s letter says. “We likewise believe that NYDFS should make sure that its definitions do not inadvertently expose individuals or businesses that seek to trade virtual currencies on their own accounts from whatever definition it ultimately adopts.”
Like the ETA, Ripple expressed worries about regulators creating an “uneven playing field,” especially if virtual-currency providers have to comply with more rules than money transmitters. “Imposing stricter licensing requirements on BitLicensees places them at a competitive disadvantage to money transmitters, which will serve only to stifle innovation in the nascent virtual-currency space,” Ripple said.
Other commentators include processor Total System Services Inc. (TSYS), The Western Union Co., Wal-Mart Stores Inc. and Amazon.com Inc. The comments can be accessed here.
In a speech before a large payments-industry audience at last month’s Money20/20 conference in Las Vegas, Lawsky said he was considering several changes to his original plan, including less stringent licensing rules for startups so that the BitLicense doesn’t restrict innovation.
