The New York State Department of Financial Services (NYDFS) has proposed new guidance for licensed cryptocurrency firms that would make it easier for them to add new coins to their offerings, Superintendent Linda Lacewell announced Wednesday.
The proposal is the first step in the department’s review of the notoriously controversial BitLicense, which is considered the toughest state regulation in the country for virtual currency-related companies.
The agency is proposing a page on its website that would list all digital assets permitted for virtual currency business activity by companies already licensed to operate in New York. Licensed companies will not need to seek prior approval by NYDFS so long as the asset is listed on the site, according to the guidance.
“In order to get a license they go through all that trouble, they have their AML and sanctions [compliance] — then they want to reach out with respect to a new coin and even if we’ve already approved that coin 175 times, they have to come back to us with a new application,” she said at a Wednesday morning event in New York hosted by Crain’s New York Business.
The NYDFS is also proposing a framework for the creation of company coin-listing policies that could be tailored to the company’s own operations and risk profile. If a policy created under this framework is approved by the NYDFS, the company could “self-certify the listing or adoption of new coins.” Again, the company would only need to provide written notice of its plans to use or offer new digital assets, but not necessarily seek approval.
The update is about more than the burden on the companies themselves of having to submit new paperwork, she added. The NYDFS needs “to strive for speed to market” and identify and work through backlogs.
“Government is juggling 100 other things,” she said. “How long does it take to complete this application? It can take months. I’m embarrassed to say there are at least one or two that took longer than a couple months. Sometimes it’s needed, but sometimes it’s not.”
The NYDFS is seeking comments on the proposal by Jan. 27.
The BitLicense was created four years ago to regulate mostly cryptocurrency wallets and exchanges, but since then, hundreds of projects, new concepts, and use cases have emerged in the space.
“I don’t think the NYDFS gets enough credit for that,” Lacewell said. “Four years later, we’re still the only regulator that has ventured into the [cryptocurrency] space.”
Many participants and observers of the industry have found the BitLicense process prohibitive for small companies that want to work with cryptocurrency and its underlying technology, but don't have much access to capital or legal resources. Just applying for one is an expensive and cumbersome process that can cost hundreds of thousands of dollars and requires an exacting review of capital requirements and policies regarding money laundering, fraud, capitalization, consumer protection and cybersecurity. Its one-size-fits-all approach to regulating crypto companies has also been seen as stifling to innovation.
“Yes, we need monitors, for example, over banks that engage or have allowed money laundering and other things to get them straight and help them trust and verify, but at a certain point it’s up to the business to operate as a responsible citizen,” Lacewell said. “If they don’t, we’re obviously going to be there.”