Digital Transactions Authoritative, insightful and timely information for payments professionals
New York State’s controversial BitLicense—the nation’s first regulations for virtual currency—are now final, and they’ve got some people on the cutting edge of payments worried about government interference. But Benjamin Lawsky, the official who oversaw the BitLicense’s development, said Wednesday that he hopes intelligent regulation can help modernize what he called “a disco-era payment system.”
“We are excited about the potential digital currency holds for helping drive long-overdue changes in our ossified payments system,” Lawsky, superintendent of New York’s Department of Financial Services, said in a speech at the BITS Emerging Payments Forum in Washington, D.C. “We simply want to make sure that we put in place guardrails that protect consumers and root out illicit activity—without stifling beneficial innovation.”
But groups such as the Washington-based Chamber of Digital Commerce trade group worry that state-by-state regulation of new payments companies and processes could hurt their young industry’s development.
“With multiple states looking to regulate digital currencies, the industry is facing an increasingly complex and burdensome regulatory environment,” Chamber president Perianne Boring said in a statement. “It is imperative that the industry’s voice is heard in discussions among policymakers to ensure what ultimately becomes law does not impede innovation.”
California, North Carolina and some other states are looking at the possibility of regulating virtual currencies too, although none yet has gone as far as New York in getting rules on the books.
Lawsky, who after four years is leaving his job later this month to become a consultant and college instructor, said his department tread carefully in designing the rules. He said he hadn’t even heard of Bitcoin, the leading virtual currency, until early 2013, when the banking crisis in Cyprus spurred many Cypriots to convert their savings into Bitcoin. The department became interested in virtual currencies because they enable providers to transmit money on behalf of consumers, which raised questions about protecting them from the loss of their funds, according to Lawsky.
The final BitLicense Lawsky announced at the Washington speech represents the third revision of the DFS proposal. Highlights, according to Lawsky, include:
• Companies will not need New York approvals for software or app updates. “We have no intention of being a regulator of software developers—only financial intermediaries,” Lawsky said.
• New York will not require duplicative applications for a BitLicense and a money-transmitter license.
• Companies that already file suspicious activity reports (SARs) with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCen) will not have to file duplicate SARs with New York. “Our goal is to avoid duplication where possible,” Lawsky said.
• Virtual-currency companies will not need prior approval from New York for every new round of venture-capital funding.
Lawsky said the final revision also addresses concerns expressed during the rules-development process that regulations would unduly burden small startups. “In particular, we sought to help provide an on-ramp for startups—while still ensuring robust standards for consumer protection, cybersecurity, and anti-money-laundering compliance,” he said.
But Boring of the Chamber of Digital Commerce questioned whether the final draft will really help startups. “New York’s final BitLicense regulations are not perfect,” she said. “The most worrisome aspect is the lack of a clear on-ramp for digital-currency startups and small businesses, especially in the likelihood that other states will use New York’s BitLicense as a guideline in creating their own regulations.”
Lawsky acknowledged that the final BitLicense will attract criticism. But he said his goal, like that of technology companies and others in the financial industry, is to modernize payments.
“I think it would shock most consumers to learn that—at its core, despite modest improvements—the [automated clearing house] system has changed little since it was created four decades ago in the 1970s … in an age of smart phones and on-demand technology, we have a disco-era payments system. And that is a problem, as much as we all love disco.”
