Crypto companies in New York could find themselves regularly paying to be regulated under the BitLicense scheme — just like banking and insurance firms do.
The New York State Department of Financial Services (DFS) is welcoming feedback on a proposal that would demand BitLicense holders consistently pony up to regulators, with bills due five times a year scaled to the size of the company.
Under the new rules, DFS would conduct four quarterly assessments before a final assessment, each with their own fees. Back in April, the New York State Senate’s budget granted DFS the authority to charge crypto companies for supervisory costs.
DFS Superintendent Adrienne Harris, at the head of the proposal, said the regulation provides for transparent and timely rules to ensure consumer protection and root out financial crimes in the space.
“The ability to collect supervisory costs will help the department continue protecting consumers and ensuring the safety and soundness of this industry,” she said in a statement.
Harris added that the supervisory costs will allow the department to “continue adding top talent” to its virtual currency regulatory team.
No benchmarks were given for amounts BitLicense holders would have to pay, but the department’s total operating expenses on oversight would ultimately dictate fees owed. Firms face penalties such as late fees, suspension or license termination if bills aren’t paid within 30 days.
The proposal will now be subject to a 10-day comment period, followed by a 60-day waiting period upon publication in the state government’s official register.
BitLicense saved New York from SBF and FTX
New York’s DFS is looking to align its crypto regulation with the finance and investment sectors, as there was no provision for consistent payments when BitLicenses were first adopted in 2015.
BitLicense was the first US state framework for crypto. Any digital asset company operating in New York or managing investments from New Yorkers, such as in a fund, must obtain a BitLicense.
Costs associated with a successful application, such as compliance and legal fees, have been pegged to cost more than $100,000, per Capital Fund Law Group. A state superintendent inspects companies for multiple factors such as total assets and liabilities, liquidity positions and amounts of leverage employed.
BitLicense costs are often labeled prohibitive, with many crypto firms simply opting to stay out of New York altogether. While the number of crypto startups worldwide range in the thousands, just 25 companies had received a BitLicense as of 2020, including Circle, Coinbase, Ripple and Square, as well as struggling crypto brokerage unit Genesis.
Only a handful of firms have received one since. FTX US, the local arm of Sam Bankman-Fried’s crumpled crypto empire, notably never received a BitLicense, instead opting to apply for a trust charter earlier this year, a move which appeared to have gotten nowhere.
This meant New Yorkers were restricted from (legally) accessing FTX US and its native token FTT. Up to a million FTX users around the world are believed to have lost funds with the defunct exchange.
In many states, companies that process cash or bitcoin and other crypto payments are required to show they have sufficient money to protect consumers if things get faulty.
But Wyoming and Texas are regarded as far more crypto-friendly than New York. According to Slate, at least 24 related laws have passed in Wyoming, with some aimed at encouraging bitcoin mining firms with cheap energy prices.
One Wyoming law makes crypto transactions exempt from money transmitter regulations. Others ensure crypto transactions are free of state tax, including sales and property tax. Texas, Nevada and North Dakota have passed similar bills.
As for New York, it’s already common practice for the DFS to charge other licensed financial institutions for oversight in the state, so its proposal is not unusual.
Although, the prospect of hitting up crypto firms for cash every few months — in the midst of a brutal bear market — has to sting.
David Canellis contributed reporting.
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