The New York State Department of Financial Services introduced BitLicense, a set of regulations for cryptocurrency business operators in 2015. It was drafted by Benjamin Lawsky, the first ever Superintendent of NYFDS. The law was introduced with an aim to regulate cryptocurrency business operating from New York but it has been hailed as more anti business.
NYDFS Cryptocurrency Regulations
The NYDFS was concerned with a boom in cryptocurrency business in New York and decided to bring regulations after the Mt Gox hack. Speaking at the CBS Fintech Forum on April 10, 2018, NYDFS Superintendent Maria Vullo said, “DFS started looking into virtual currency in 2013, long before it was on the radar for most of the financial services world. At the time, Bitcoin was fluctuating around $100.”
The Mt Gox hack was the trigger for NYDFS to start considering a regulation that would not harm cryptocurrency business but safeguard investor capital. The NYDFS stated that cryptocurrency exchanges and startups were inefficient at managing and safeguarding customer funds. Also smaller businesses were unregulated and may have been involved in money laundering. The NYDFS was also worried with cryptocurrencies being used to deal in drugs and illegal arms.
BitLicense is launched
On July 17, 2015, the NYDFS released its first draft of the proposed laws. The 40 page filing mandated the registration of all commercial business dealing in cryptocurrencies with the NYDFS. The law applied to all citizens and business operating either from New York or serving other customers in New York. The law came into effect on August 08, 2015 and thus began the ‘Great Bitcoin Exodus.’
The Great Bitcoin Exodus
The regulation made it tougher for cryptocurrency companies to operate in New York and as a result many businesses were forced to switch to a different state. Any company that would receive a BitLicense had to compulsorily report its consolidated finances on both standalone and quarterly basis to the NYDFS.
The license has courted controversy ever since it was launched. Many cryptocurrency leaders had warned that New York would potentially end up becoming a no go zone for cryptocurrency startups. They viewed BitLicense as a potential hindrance to the industry and stated it would stagnate its development in New York.
So far only nine companies have managed to receive a BitLicense from the NYFDS. They include Circle, Ripple, Coinbase bitFlyer, Genesis Global Trading, Xapo and payments processor Square. The NYFDS has taken a more easier stance over the last three months and is working closely with cryptocurrency businesses.
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