The New York State Department of Financial Services (NYDFS) recently published a proposal for reforming its licensing framework for virtual currency businesses to operate in New York.
Commonly known as the “BitLicense”, the 2015 regulation laid out the parameters for cryptocurrency companies to conduct business in New York. Since its enactment, 25 licenses have been granted. In its five-year review of the regulation, NYDFS identified changes and concerns that needed to be addressed. As such, NYDFS has proposed new clarification for the steps necessary to obtain a conditional license as well as seek comments on how to proceed forward.
NYDFS provided clarity on certain rules and proposed amendments to application procedures for obtaining a BitLicense. The proposed framework would allow a firm conducting virtual currency activities to operate in New York by obtaining a “conditional BitLicense.” Firms can obtain a conditional BitLicense by partnering with a firm that has a full license. The expectation is that an entity seeking a conditional license will eventually obtain a full BitLicense within two years. In essence, a company seeking the conditional license will contact the NYDFS to indicate its intention to partner with an already-licensed company and submit required documentation. NYDFS will then conduct a review, which will take substantially less time than the review of a full BitLicense application, and if approved, the company may begin conducting business in New York. By implementing a conditional license, NYDFS aims to alleviate pains caused by the lengthy review process required to obtain the traditional Bitlicense.
In addition, the NYDFS announced two practices regarding the review of BitLicense applications. First, NYDFS will consider a BitLicense application to be ready for substantive review only when it includes all the documents required as part of the application process and “each such document appears to be adequate on its face in terms of organization and level of detail.” Second, once substantive review of an application begins, where NYDFS staff requests additional information in detailed deficiency letters, the letters will include a return date. If all deficiencies have not been “fully and effectively addressed by the end of the response period for the third deficiency letter addressing the requirement(s), DFS may, without further notice, deny the application.” Overall, these changes are intended to “increase transparency and speed in the BitLicense application review process.”
NYDFS’s proposal, if implemented, will be a notable step forward for the cryptocurrency space in New York. NYDFS acknowledged the notion that the current BitLicense application process has long been considered tenuous and resource-intensive for many organizations. As such, many start-ups and emerging companies have chosen to avoid conducting business in New York altogether, undoubtedly turning many business opportunities and innovations away from one of the premier financial markets in the world. The conditional license however offers a viable alternative for many of the organizations that do not meet the full capital requirements on a stand-alone basis. The regulatory update represents much-needed regulatory clarity and may indeed provide an easier path for virtual currency business to conduct business in New York.
The NYDFS requests all comments on the proposal be submitted by August 10, 2020 and provides a list of questions that NYDFS is seeking feedback on. The proposal can be read in its entirety here.