On Wednesday, February 4, Ben Lawsky, the Superintendent of the New York Department of Financial Services (NYDFS), released the revised version of the infamous BitLicense. This piece of regulation will require all Bitcoin businesses in New York that deal with transmitting Bitcoin, and exchanging it for fiat, to obtain a license. Holding a license will require businesses to comply with several stipulations, the major ones being capital requirements, record keeping standards, an Anti Money Laundering program, and a Cybersecurity program.
BitLicense was initially announced in the summer of 2014, and was met with heavy criticism from the Bitcoin community. Members of the community feared that the regulation would create a severely restricted Bitcoin economy in New York that would violate privacy and stifle innovation in what is considered to be the financial capital of the world. Critics cited several things from BitLicense that were particularly worrisome, such as fingerprint requirements for company employees and invasive record keeping requirements.
Prominent people from the Bitcoin world submitted official comments to the NYDFS, hoping the Department would heed their advice and make positive changes. Some people, such as Erik Voorhees and Circle CEO Jeremy Allaire, were harsh towards the Lawsky and the NYDFS — saying that BitLicense was draconian and would set an unfortunate precedent for Bitcoin regulation in the rest of the world. Other entities, such as the Bitcoin Foundation, essentially accepted the regulation with open arms and very little criticism.
At the end of the 90-day public commenting period in late 2014, the NYDFS took all of the comments into consideration and began preparing a revised draft of BitLicense. After several months of waiting, here are the changes Lawsky has submitted to the community. We will list the changes made, in order, section-by-section. This list is not exhaustive, though, it only covers revisions of stipulations that were highly controversial upon the release of BitLicense’s first draft. Some sections will be left out of the list, either because there were no changes made, or because the changes made were insignificant.
Section 200.2: Definitions
- Added “Gift Card”: “an electronic payment device that is: (i) usable at a single merchant or an affiliated group of merchants that share the same name, mark, or logo, or is usable at multiple, unaffiliated merchants or service providers; (ii) issued for a specified amount; (iii) potentially but not necessarily able to be increased in value or reloaded; (iv) purchased and/or reloaded on a prepaid basis for the future purchase or delivery of goods or services; (v) honored upon presentation; and (vi) potentially but not necessarily able to be redeemed for the same type of funds that were used to purchase or load the device,” [Subsection(f)].
- Added “Qualified Custodian”: “a bank, trust company, national bank, savings bank, savings and loan association, federal savings association, credit union, or federal credit union in the State of New York, subject to the prior approval of the superintendent,” [Subsection(n)].
- Changed the definition of “Virtual Currency” to exclude “digital units used as part of Gift Cards,” [Subsection(p)].
- Changed the definition of “Virtual Currency Business Activity” to exclude Virtual Currency transmissions that are initiated for non financial purposes, and do not involve the transfer of more than a “nominal amount,” [Subsection(q)].
- Regarding Bitcoin development: “The development and dissemination of software in and of itself does not constitute Virtual Currency Business Activity.”
Section 200.4: Application
- Fingerprint requirements have been scaled back; this stipulation now only applies to employees that handle customer funds, rather than all employees [Subsection (a)(5)].
- The superintendent may now grant an applicant a “conditional license,” which may be revoked or converted to a permanent license at the superintendent’s discretion [Subsection(c)].
Section 200.5: Application Fees
- There is now a specified application fee of $5,000 USD. Previously, the superintendent had the ability to arbitrarily set the application fee.
Section 200.8: Capital Requirements
- Required capital can now be held in Virtual Currency. Previously, companies were not allowed to hold capital in Virtual Currency [Subsection(b)].
Section 200.9: Custody and Protection of Customer Assets
- A company’s trust account must be maintained by a Qualified Custodian [Subsection(a)].
Section 200.11: Change of Control; Mergers and Acquisitions
- Scaled back the definition of “control” by adding qualifiers that can exempt investors from the change-of-control approval requirement laid out in this section [Subsection(a)(3)].
Section 200.12: Books and Records
- Companies now only have to store their records for 7 years. Previously, companies were required to store records for 10 years [Subsection(a)].
- Specified that recordkeeping for transactions applies to customers or accountholders of the company, as well as any other parties to the transaction, “where applicable,” [Subsection(a)(1)].
Section 200.16: Cyber Security Program
- Struck the source code reviews requirement, Subsection(e)(3) of the first draft.
Section 200.22: Severability
- This section is an entirely new addition to BitLicense, which states, “If any provision of this Part or the application thereof to any Person or circumstance is adjudged invalid by a court of competent jurisdiction, such judgment shall not affect or impair the validity of the other provisions of this Part or the application thereof to other Persons or circumstances.”
There is a 30-day public commenting period for this draft of BitLicense, which will end on Friday, March 27, 2015 . Comments can be submitted to email@example.com. Bitcoinist strongly urges our readers to look over both versions of the BitLicense proposal and submit your comments regarding the revised draft to the NYDFS. Regardless of whether or not one agrees or disagrees with the purpose and content of BitLicense, this regulation will likely have a significant impact on the Bitcoin economy in New York, and possibly the international Bitcoin economy as well. The only way the NYDFS will take your opinions into consideration is if you submit a formal comment. Therefore, if you have something productive to contribute to the discussion, it is imperative that you make your voice heard!
What do you think about the changes made to BitLicense? Let us know in the comments below!