Bitcoiners: NY Overstepping its Bounds, Proposed Regs Could Kill Bitcoin Businesses in State
July 24, 2014
The Bitcoin industry is coalescing in its opposition to a proposed set of regulations governing digital currencies and the companies using them emanating from the New York Department of Financial Services (NYDFS). Benjamin Lawsky, New York’s superintendent of financial services, in March announced the state would create "BitLicenses" for companies that wanted to operate Bitcoin companies there. The set of regulations NYDFS proposed a week ago, however, have come under fire from the fledgling industry as overreaching, innovation-stifling and possibly unconstitutional.
Lawsky said the proposal "[strikes] an appropriate balance that helps protect consumers and root out illegal activity – without stifling beneficial innovation."
The Bitcoin industry gathered this past weekend at an event in Chicago and, unsurprisingly, begged to differ. Much of the discussion at the North American Bitcoin Conference centered on the NYDFS proposal. Criticism of the proposal revolved around what was characterized as an incredibly broad definition of whom the law applies to and the onerous nature of many of the rules.
"You don’t have to be in New York to be subject to this law," said attorney Jacob Farber. "If you do business with a New York resident, arguably if you advertise in New York, you could end up subject to the framework."
Patrick Murck, general counsel for The Bitcoin Foundation, called the proposal "ridiculous" during a panel discussion on the topic. He noted there are definitely critical control points for anti-money laundering risk in the Bitcoin world around the exchanges and a critical control point for consumer protection around the custody of funds. Regulation aimed at these areas would be useful, he said, but the DFS proposal virtually ignores them and exhibits a fundamental misunderstanding of digital currencies.
"One of the biggest points about Bitcoin is it eliminates counterparty risk," Murck said. "These regulations would force people to use services that reincorporate counterparty risk under the aegis of the NYDFS. Understanding where the critical control points are and what the actual risks are in tailoring regulations for actual risks that can occur in a digital economy is a safe, sound, sane way of going about this. Instead, we got a scattershot approach, saying, ‘since we’re here, why don’t we regulate the whole thing everywhere in the world, right here in New York.’"
Congressman Steve Stockman (R-Tex.), who also sat on the panel, said don’t discount where the banking capital of the U.S. is based, if you’re looking for a motivation behind such restrictive rules.
"Unfortunately, I think it’s much more nefarious than has been discussed," said Rep. Stockman. "If a banker is being honest he would tell you he sees [Bitcoin] as a major threat."
New York digital-currency attorney Marco Santori, on the other hand, believes that Benjamin Lawsky actually does want New York to become the "premier jurisdiction for digital currency businesses," as he has stated in the past.
"The way to do that, in their minds," Santori said, "is to regulate away all the problems we think we can innovate away."
The proposed regulations were printed to the state register yesterday, kicking off a 45-day comment period during which all interested parties can state their position directly to the NYDFS. Even the length of the comment period – the shortest possible time allowed by the state for public comment – has come under fire.
"One egregious aspect is that the NYDFS is only giving 45 days to comment, which is severely inadequate in regard to proposed regulations of this scope" said Perianne Boring, president of the Chamber of Digital Commerce, which launched at the event . "We are requesting that the NYDFS extend the comment period through the end of 2014, to allow the industry adequate time to properly review and respond."
Regardless of the time allowed, however, every member of the panel stressed the importance of participating directly in the process if you are a Bitcoin-based business. The Digital Chamber yesterday issued a press release calling on the entire Bitcoin ecosystem to submit comments as soon as possible.