By SYDNEY EMBER AUGUST 6, 2014 9:17 AMAugust 6, 2014 10:23 am 2 Comments
Bitcoin faces a proposal for new virtual currency regulations in New York.Credit Lucy Nicholson/Reuters
Big-name Bitcoin supporters are stepping up the pressure on New York State’s top financial regulator to extend the comment period for the state’s new virtual currency rules.
On Tuesday, the Bitcoin Foundation sent a letter to Benjamin M. Lawsky, New York State’s superintendent of financial services, asking for up to six months to provide feedback on the proposed regulations, and a minimum of 45 additional days.
“With some important, sophisticated exceptions, the Bitcoin community is not well-versed in New York financial services law or regulation,” the letter said. “It takes time to gather the meanings of legal terms of art and to compare them with emerging technologies, processes and business models in the Bitcoin world.”
The move came a week after a group of virtual currency supporters sent a separate letter, which was signed by about 400 Bitcoin enthusiasts, requesting a similar extension of the comment period.
The Bitcoin Foundation’s letter asked Mr. Lawsky’s office, the Department of Financial Services, to “adopt an iterative process” in which the department would issue multiple drafts of the legislation and take comments from interested parties. The letter calls for the department to “resist the constraints of administrative procedures developed in the era of postage stamps,” saying that the traditional comment process for legislative proposals is outdated. The foundation also requested a hearing to discuss the regulations.
Of particular concern to the Bitcoin Foundation, a nonprofit advocacy group based in Washington, is that Mr. Lawsky’s draft legislation does not address the risks unique to digital currencies.
“The Bitcoin community is not used to being a heavily regulated industry,” said Jim Harper, global policy counsel at the Bitcoin Foundation. Bitcoin supporters may feel unable to comment on the proposed regulations “because the language doesn’t tell you what the goal is,” he added.
To address the issue, the Bitcoin Foundation asked for a public document outlining Mr. Lawsky’s rationale for the proposed rules. Should his office not provide such material, the foundation asked Mr. Lawsky to treat the letter as a request under New York’s Freedom of Information Law. Mr. Lawsky’s office responded on Tuesday evening that it was considering the letter as such a request and would provide documents to the foundation within 20 business days.
When it was introduced in 2009 by a programmer, or group of programmers, Bitcoin found a following among anti-establishment enthusiasts and technology buffs who operated on the fringes of the financial system. Now, as virtual currency becomes more accepted in the mainstream, start-ups fear they may not have the resources to comply with regulations that seem to favor more established financial institutions.
The regulations introduced by Mr. Lawsky’s office are intended for virtual currency companies operating in New York State and include rules on consumer protection, cybersecurity and the prevention of money laundering. A “BitLicense” would be required for Bitcoin exchanges and for companies that secure, store or maintain custody or control of the virtual currency on behalf of customers. Merchants that accept Bitcoin for payment would not have to apply for a license.
Some Bitcoin supporters contend that New York’s proposed rules will affect not only virtual currency companies operating in the state, but also businesses across the United States and the globe. Virtual currency start-ups have also expressed concern that they will not be able to meet certain licensing requirements, some of which are stricter than those for other financial institutions like banks. Smaller businesses are wary of the extensive reporting rules, significant capital requirements and robust cybersecurity programs to obtain a license, which would require extensive resources that many of the start-ups do not have.
Other Bitcoin enthusiasts, however, view the proposed rules as an important step toward legitimizing the virtual currency.
The public currently has 45 days from July 23 to comment on the proposal, after which Mr. Lawsky’s office intends to make changes to the rules and send them back out for review for another 30 days.
Mr. Lawsky said last week that he was willing to address concerns that it would be difficult for smaller companies to comply with the regulations. He also said he would consider extending the comment period.