On June 24, 2020, New York’s Department of Financial Services (“DFS”) announced a series of steps it is taking to promote development and opportunities in the virtual currency space. These actions would build upon New York’s “BitLicense,” a virtual currency licensing regime implemented in 2015 that establishes minimum standards for all financial intermediaries that conduct virtual currency activities in New York.
First, DFS announced a proposed framework to allow applicants such as a startups, growth-stage companies and established New York companies that have yet to endeavor into the virtual currency marketplace to obtain a conditional BitLicense or limited purpose trust charter to engage in virtual currency business activity in New York. Second, DFS and the State University of New York (“SUNY”) signed a Memorandum of Understanding stating their intent to launch “SUNY BLOCK,” a virtual currency program focused on spurring innovation and fostering accessibility to the virtual currency marketplace. And third, DFS publicized final guidance regarding the adoption and listing of virtual currencies.
- Conditional License (Proposed Framework). The newly-proposed conditional license framework would allow an applicant to collaborate and engage with an existing holder of a BitLicense or a New York limited purpose trust charter (each a “VC Entity”) for “various services and support, such as those relating to structure, capital, systems, personnel, or any other support needed.” This is intended to alleviate some of the costs and challenges facing early-stage companies seeking to obtain a BitLicense and enter the New York marketplace. Under this program, a startup or emerging company could receive a conditional license while it works to establish the necessary compliance protocols and financial position to make its way through the BitLicense application process. The comment period for the proposal runs until August 10, 2020.
- SUNY BLOCK. SUNY BLOCK is an incubator program that is built around the idea of the newly-proposed conditional licensing framework. The intersection that SUNY BLOCK will offer between the local business and academic community will hopefully serve as a launching pad for innovation in the virtual currency space, while also setting the stage for deeper knowledge about virtual currencies and building upon research to support the next generation of projects and companies. SUNY BLOCK should serve as an onramp to the virtual currency marketplace for students, academics, alumni and the local community.
- Adoption or Listing of Virtual Currencies (Final Guidance). After reviewing the comments received on its December 2019 proposed guidance regarding adoption or listing of virtual currencies, DFS revised its guidelines to provide (A) a general framework for a VC Entity’s creation of a firm-specific policy for the adoption or listing of a new coin, without DFS’s prior approval, through the process of self-certification; and (B) a general framework for the process of “Greenlisting” coins for wider usage. The “Greenlist” is a list of all coins permitted for VC Entities’ Virtual Currency Business Activity, without prior approval from DFS. This guidance is intended to enhance the speed and efficiency for the adoption or listing of coins while also maintaining the required safety and soundness for consumer protection.
As the digital currency market continues to evolve and expand, DFS has shown a willingness to support innovation by early-stage companies, improve its transparency and provide guidance. To that end, DFS issued answers to new virtual currency-related FAQs, which DFS will update as it receives questions and feedback from the industry. Some examples of the topics covered in the FAQs include who needs a BitLicense, how to submit an application for a BitLicense, capital requirements, and the Greenlisting process.
States are looking to provide opportunities for business growth and expansion, especially in these challenging times. Other states may soon follow New York’s lead[1] and enact similar incubator programs tied to local universities and conditional licensing regimes to attract business to their state. However, along with innovation comes risk, and it will be important for such businesses to ensure compliance with state and federal regulations in the ever-evolving cryptocurrency marketplace.
[1] Other states have also taken some steps to foster innovation and spur growth in virtual currencies. For example, Wyoming has established the Select Committee on Blockchain, Financial Technology and Digital Innovation Technology to develop knowledge and expertise in the area. Wyoming also clarified aspects pertaining to digital assets, including duties of digital asset custodians, the jurisdiction of Wyoming courts to hear claims related to digital assets, and what it means to perfect a security interest in virtual currency and digital securities. In Texas, the Austin Blockchain Collective advocates and provides education and guidance for local blockchain and crypto vendors and users. Local individuals and global businesses are able to utilize expertise and connections from members and companies who are full-time businesses with a presence in the Austin, Texas area. Hawaii has also announced its Digital Currency Innovation Lab, which is a two-year pilot program in collaboration with Hawaii’s Department of Commerce and Consumer Affairs, the Division of Financial Institutions, and the Hawaii Technology Development Corporation to allow select companies to conduct business transactions with digital currency without the traditional money transmitter license requirement.