What’s in the Bitlicense’s 5-year update?
Some good changes have been made and a door to fix the main issue has been opened.
On the Bitlicense’s 5th anniversary, NYDFS has announced plans to streamline the licensing application process, the new coin listing process, and it has updated a Frequently Asked Questions page. These changes are welcome, but more work needs to be done, specifically on the definition of who is required to obtain a license.
Coin Center was critical of the Bitlicense from the start (coincidentally from our start as a non-profit five years ago as well). In our comment to DFS of May 2015, we argued that the then-draft regulation lacked a start-up on-ramp, a notification-based rather than pre-approval-based process for new products, and—most important to Coin Center—a clear and narrow definition of precisely who is and is not required to get a license. Their failure to address these concerns in the final regulation was a substantial reason why the Bitlicense met such criticism and was so plagued by delays in licensing approvals. Make no mistake, on balance the Bitlicense has chilled cryptocurrency innovation in the Empire State.
Today we’re happy to see change happening at the DFS as several of our original concerns are being addressed. NYDFS will be partnering with SUNY and other universities (as well as existing licensees) to allow for supervised conditional licenses. This should create an easier on-ramp to getting licensed. It’s a smart approach that should offer sensible guardrails for new entrants, and choosing universities as potential sponsors for conditional licensees will keep things competitive and open to even those young entrepreneurs who aren’t incumbents or entrants flush with venture capital backing. Additionally, NYDFS will be easing the process of pre-approval for new product listing at licensed firms through a green-list of pre-approved coins and a self-certification regime not unlike the CFTC’s enlightened approach toward derivatives contracts listing. That’s two of our original concerns addressed.
Our main concern, a clear and narrow definition of precisely who must get a license, is also being partially addressed with changes to the frequently asked questions page on the DFS website. There are now much clearer statements that miners, software developers, and people selling their own coins on their own behalf do not need to get licenses. We are still unsatisfied, however, with the imprecision of the Bitlicense’s definition of who is required to have a license.
The only businesses that should be required to have licenses are those that are truly custodial: those who can unilaterally execute or indefinitely prevent transactions on behalf of some customer. That’s the standard in the excellent Uniform Law Commission’s model licensing law, and that’s analogous to FinCEN’s standard of “independent control.” We will continue to advocate that DFS adopt a definition that has parity with the rules from FinCEN and the ULC’s model. Without this clarity it remains uncertain whether a multi-sig wallet provider or a lightning node operator require a license. These non-custodial entities pose almost no risk to consumers and that’s why licensing them is senseless and innovation-chilling. Thanks to our work with the ULC and FinCEN, there’s near consensus on sound policy toward non-custodial activities, making NYDFS an outlier in its innovation-chilling ambiguity, but we’re optimistic that greater clarity is on the way.
While we would have welcomed this thinking five years ago, it’s great to see movement at DFS toward sensible and innovation-friendly regulation.