New York’s Crypto Regulations Have Become a Guiding Light for Innovation
As the nation’s financial hub, New York has some of the most thorough and granular crypto regulations. Regardless of whether these policies inspire hope or fear, many crypto fans believe they are important to fully comprehend.
As the nation’s financial hub, New York has some of the most thorough and granular crypto regulations.
The New York State Department of Financial Services (NYDFS) took notice of cryptocurrency’s potentially wide-ranging ramifications nearly six years after its genesis block and codified a piece of crypto law known as the “BitLicense.”
The BitLicense has gotten mixed reviews, with proponents hailing it as a transparent yet rigorous framework for establishing cryptocurrency’s mainstream credibility, while others accuse it of being unduly severe. Regardless matter whether these policies inspire optimism or apprehension, they are important to many individuals and businesses.
- Introduction and Approval
- Difference Between BitLicense and Limited Purpose Trust Charter
- Adoption and Approval
- The Future of New York Cryptocurrency Regulation
New York State is widely regarded as the financial center of the United States, and probably the globe, with its epicenter of New York City and Wall Street.
At the end of 2019, the New York State Department of Financial Services (NYDFS) supervised and regulated the activities of financial institutions with total assets of $7.3 trillion. In 2015, about six years after Bitcoin’s genesis block, the New York Department of Financial Services (NYDFS) took notice of cryptocurrency businesses and codified crypto regulation known as the “BitLicense.”
A Limited Purpose Trust Charter was also an option for individuals wanting for even more fiduciary power.
Only a few BitLicenses or Limited Purpose Trust Charters had been given by the end of 2016, and a number of cryptocurrency companies in New York had ceased operations. However, as the Bitcoin sector has progressed, so has the public’s perception of these restrictions.
Many organizations have been permitted to operate under New York crypto rules, and for many in the cryptocurrency industry, this has become a significant compliance achievement.
Introduction and Approval
In 2013, the New York Department of Financial Services began collecting applications for money transmitter licenses from cryptocurrency businesses, putting the industry on notice. Former New York Department of Financial Services Superintendent Benjamin Lawsky offered a suggested regulatory framework for bitcoin enterprises in July of 2014.
Businesses based anywhere in the world would be affected by the crypto rule as long as they served customers in New York State. This announcement sparked a discussion between the industry and the Department of Justice regarding prospective bitcoin (and crypto) regulation.
In June of 2015, cryptocurrency enterprises involved in the following activities were required to obtain approval under the BitLicense or Limited Purpose Trust:
- Transmitting virtual currency
- Storing or custodying virtual currency
- Buying and selling virtual currency, including exchanging virtual currencies for fiat currencies
- Operating a virtual currency trading exchange
- Issuing virtual currency
For the following, a BitLicense or Limited Purpose Trust is not required:
- Virtual currency mining businesses
- Businesses who accept virtual currency as payment for goods and/or services
Consumer protection, cybersecurity, Know Your Customer (KYC), and Anti-Money Laundering (AML) guidelines are among the requirements that enterprises must meet on a regular basis under New York crypto regulations.
In addition to such criteria, the BitLicense or Limited Purpose Trust only covers “greenlisted,” pre-approved cryptocurrencies. The following is a breakdown of those coins as of Q4 2020:
- Cryptocurrencies approved for listing:
- Binance USD (BUSD)
- Bitcoin (BTC)
- Bitcoin Cash (BCH)
- Ethereum (ETH)
- Gemini Dollar (GUSD)
- Litecoin (LTC)
- Pax Gold (PAXG)
- Paxos Standard (PAX)
- Cryptocurrencies approved for custody:
- All cryptocurrencies approved for listing (above)
- Ethereum Classic (ETC)
- Ripple (XRP)
Difference Between BitLicense and Limited Purpose Trust Charter
Companies applying for a Limited Purpose Trust Charter must meet extra regulatory requirements than those asking for a BitLicense, such as applying to the New York Banking Board instead of merely the NYDFS. A BitLicense recipient must apply for a New York money transmitter license, whereas a Trust Company can use its trust status to conduct money transmission.
Having fiduciary rights that allow trust businesses to handle their clients’ assets is one of the advantages of the Trust Charter over the BitLicense.
These extended fiduciary abilities may play a role in what products and services trust firms offer their consumers as crypto regulations develop and advance.
Adoption and Approval
Many crypto businesses considered the regulations to be extremely expensive and onerous when the New York crypto regulations were originally implemented. As a result of this, some have dubbed it the “Great Bitcoin Exodus,” with companies like Shapeshift and Kraken opting to stop serving consumers in New York.
Nonetheless, the number of companies that have secured a BitLicense or Limited Purpose Trust has dramatically expanded in recent years. The following companies have been approved (as of Q4 2020):
Limited Purpose Trust:
- Bakkt Trust Company
- Coinbase Custody Trust
- Fidelity Digital Asset Services, LLC
- Gemini Trust Company, LLC
- NYDIG Trust d.b.a. Stoneridge
- Paxos Trust Company, LLC
- Bitstamp USA Inc.
- Circle Internet Financial Inc.
- Coinbase Inc.
- Cottonwood Vending
- Eris Clearing, LLC
- Genesis Global Trading, Inc.
- LibertyX/Moon Inc.
- NYDIG Execution LLC
- Paypal (conditional BitLicense in partnership with Paxos Trust Company LLC)
- Robinhood Crypto
- Seed Digital Commodity Market, LLC
- SoFi Digital Assets
- Square, Inc.
- Tagomi Trading
- Xapo, Inc.
- XRP II LLC (Ripple)
- Zero Hash LLC
Obtaining these permits has become a badge of honor for some businesses. “Companies started to recognize that if they had a license from us, that meant they had been vetted…,” NYDFS Superintendent Linda Lacewell told Bloomberg in November 2019. and that DFS was willing to say that this company is fine to do business with in New York. Reasonable regulation creates a safe environment in which to innovate.”
The Future of New York Cryptocurrency Regulation
Despite the fact that many businesses are benefiting from New York’s crypto legislation, the NYDFS remains committed to providing the greatest possible environment for innovation.
The NYDFS has established a Division of Research and Innovation, which is now studying the BitLicense and crypto regulations in New York, according to their 2019 annual report. Guidance for recognized companies to self-certify new cryptocurrencies and allow listing without centralized permission from the NYDFS is one of the primary topics they plan to address.
What began as a death knell for bitcoin startups based in New York has quickly evolved into one of the industry’s leading forces for compliant innovation.
Rather of considering the BitLicense and other crypto rules as a way to impede innovation, we can anticipate new announcements.