Piggyback Ride to New York BitLicense

Client Alert
July 13, 2020

On June 24, 2020, the New York Department of Financial Services (the "NYDFS") announced it is considering a proposal to issue conditional licenses (a "Conditional License") for companies to begin virtual currency activities in New York without the notoriously burdensome and expensive BitLicense.  

Operating under a Conditional License would mean working in collaboration with an authorized BitLicensee or a holder of a New York limited purpose trust charter (a "NY Trust Company"). The collaborating BitLicensee or NY Trust Company would assist the Conditional Licensee with various services and support, such as those relating to structure, capital, systems, and personnel. 

Much Ado About Nothing

In theory, if adopted, the framework for a Conditional License lowers the barrier to enter the New York market. But that may only be true if the proposal does not come with new regulatory complexities and bureaucratic barriers. We have already seen current BitLicensees and NY Trust Companies collaborating through joint ventures and service arrangements with others who do not have their own BitLicense. Therefore, it is questionable what benefit this proposal may bring.

Is New York Worth Climbing A Mountain?

To date, the NYDFS has granted BitLicenses to 25 entities to engage in virtual currency services in New York. The NYDFS Superintendent Linda Lacewell admits that there was an immense backlog of applications when she arrived at the agency almost a year and a half ago. However, she claims to have cleared at least a third of these languishing proposals in her first year.

One of the things that we heard loud and clear is that we should find opportunities to open up the fields, that our license is good and solid, but we need to make it more available.

- NYDFS Superintendent Linda Lacewell

NY State Department of Financial Services logo

Although the process for obtaining a BitLicense or NY Trust Company can be costly and long compared to similar licenses in other states, some companies holding such licensees don’t express regrets looking back. According to Coindesk, BitFlyer was willing to make the investment to enter the U.S. market despite the high cost of entry and believes that the license helped the company expand its global operations.[1] Another BitLicensee, Bitstamp, shares the view and continues: 

Obtaining the Bitlicense has also helped build relationships and partnerships with other high-quality companies that are entering crypto for the first time but feel more comfortable dealing with regulated entities.[2]

- Hunter Merghart, Head of U.S. Operations, Bitstamp

Although the NYDFS only issued a concept notice without any proposed text for new regulation, it posted 11 questions for the public to consider and provide feedback on by August 10, 2020.[3]

[1] Story from Policy & regulation, BitLicense at 5: For Startups Regulated Overseas, New York Isn’t So Tough, Sandali Handagama, June 24, 2020.  Available at: https://www.coindesk.com/for-startups-regulated-overseas-new-york-isnt-so-tough.

[2] Id.

[3] Request for Comments on a Proposed Framework for a Conditional BitLicense.  Available at https://www.dfs.ny.gov/apps_and_licensing/virtual_currency_businesses/gn/req_comments_prop_framework.

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