NYDFS superintendent Lawsky: Bitcoin miners and devs aren't subject to BitLicense
Bitcoin miners, developers, and individual users will be exempt from the imminent BitLicense regulations which will soon be passed into law in New York. This is according to public statements by New York Department Financial Services (NYDFS) superintendent Benjamin Lawsky, who spoke last night at the Benjamin N Cardozo School of Law, New York. He said:
We are regulating financial intermediaries. We are not regulating software development. To clarify, we do not intend to regulate software or software development. For example, a software developer who creates and provides wallet software to customers for their own use will not need a license. Those who are innovating and developing the latest platforms for digital currencies will not need a license.The BitLicense is aimed at companies handling other people’s money, either as a wallet provider (aka, bank), exchange, lender, and so forth. Lawsky later added:
Mining per se will not be regulated. To the extent the miner engages in other virtual currency activities, however – for example, hosting wallets or exchanging virtual currency – a license may be required for those activities. For mining itself, there will be no license requirement.Lawsky has generally been thought to be a friend to the bitcoin community, acting as one of the most thoughtful and vocal supporters of the technology among politicians and regulators. But he ran into some strong opposition when his office released the first version of the BitLicense proposal for public comment. Many bitcoin companies, fearful of what they viewed as overreaching and onerous registration and compliance provisions, have threatened to wall off New York and prevent consumers based in the state from using their service. Many bitcoin supporters argue that the regulations, as drafted, would badly stifle virtual-currency innovation.
The NYDFS ultimately extended the comments period for the BitLicense proposal, and has requested detailed feedback from bitcoin community leaders around requested changes to the proposal. The regulator’s office has also promised to eventually release public comments submitted and explain how they were handled.
Lawsky said all the right things last night, including promising to keep compliance costs down and to encourage startup innovation in this category. He also clarified that large banks and financial institutions will be required to comply with the same BitLicense regulations if they choose to deal in virtual currencies, a point that was unclear in the language of the original proposal.
Speaking again this morning during a Bloomberg TV interview, Lawsky addressed the conflicting desire to see bitcoin flourish while minimizing the impact it has on money laundering and criminal activity like drug trade, and terrorism finance:
As regulators, we want to allow the online world to flourish, software to develop, entrepreneurs to innovate. And there are many good things that bitcoin, should it develop, could bring. At the same time, you have to do it in a way that does something about the people who want to do bad things with the anonymity that they would enjoy.The BitLicense was first proposed following the collapse of Mt. Gox in early 2014, then the world’s largest exchange, and shortly after the FBI shut down the Silk Road dark web drug bazaar in late 2013. Lawsky called cyber security and the fight against hacking, “the most important issue we [will] deal with for the remainder of this year and throughout 2015,” adding:
It is an enormous threat. I don't think regulators and prosecutors alone can solve it. It's got to be something we do in collaboration with industry and the firms themselves. We have to work together. We have to spend a lot more money. We have to take it a lot more seriously, and we have to pull out all stops, and we have to be really imaginative about how bad it could get. And that's not a fun thing to do. It actually keeps you awake at night.Latter, addressing the challenge of policing the dark web, Lawsky told Bloomberg’s Trish Regan:
I think prosecutors will eventually bring the hammer down if these sites are being abused and people are dealing in illicit drugs, just like they would do if it was happening in the real world, not the virtual world. We'd like to see consumer protection. So when people entrust their money to a bitcoin wallet or a bitcoin exchange or another service, that we don't have a situation like we had in Japan last year with Mt. Gox collapsing where the entity that was holding people's bitcoin basically just disappeared. It was in Japan. There was no regulator. There was no regulation and it just basically went away. So I think we want to see consumer protections. We want to see sufficient cyber security to prevent terrible hacking, and we want to see enough capital requirements on the entities themselves so they don't collapse under their own weight.The process calls for the NYDFS to release an updated version of the BitLicense proposal in the coming weeks and then for another period of public comments. Bitcoin supporters are right to take this process seriously and to be thoughtful in their comments and requests. Lawsky has shown that he's committed to maintaining an open dial with community leaders and to ensuring that bitcoin and other virtual currencies are not shut out of New York, while at the same time protecting consumers and investors from bad actors.
The overarching fear for many bitcoin supporters has been that New York is viewed globally as a leader in financial regulation, and thus, the expectation is that the BitLicense will become the framework to be followed by other states and even regulators in other countries, once signed into law. Should the BitLicense end up particularly onerous, then it could have ripple effects across the global bitcoin ecosystem. New York is also ground zero for much of the world’s institutional capital, and if it becomes an onerous place to do virtual-currency business, then that could have a chilling effect on the ability for these investors to participate in the bitcoin markets.
Unsurprisingly, Lawsky and the NYDFS aren’t offering the bitcoin community the utopian regulation free environment that many advocates have clamored for. Bitcoin will be regulated and those operating in the space will need to take measures to ensure consumer safety and to prevent money laundering. But, judging by Lawsky’s comments over the last 24 hours – which fairly or not, many will likely write off as lip service – it seems like the endgame for BitLicenses may not be the draconian, anti-innovation state that many have feared.