Final BitLicense Announced in Lawsky’s Last Speech

BitLicense  •  NYDFS  •  Virtual Currency

New York State Department of Financial Services (NYDFS) Superintendent Benjamin Lawsky in a speech yesterday at the BITS Emerging Payment Forum announced the final version of the long-awaited BitLicense. He stressed several points in his short speech, and during the speech, NYDFS published the final version of the rule on its website.

Superintendent Lawsky’s main points were as follows:

  • Companies falling under the regulatory regime do not have to obtain prior approval to provide a standard update to their protocols. However, material changes to the business model will require prior approval.
  • Companies do not have to submit duplicate applications for a money transmitter license and a BitLicense.
  • Companies filing SARs with the federal government will not have to make duplicate filings with NYDFS.
  • Individuals serving as officers or directors of a Licensee do not necessarily qualify as control persons that need to be disclosed as investors unless they otherwise own control or hold with power to vote 10% or more of the voting stock of a Licensee or a person that controls a Licensee .

Superintendent Lawsky also stressed that NYDFS is seeking to regulate financial intermediaries and companies that take custody of customer funds but does not necessarily want to regulate software.

The final version of the BitLicense includes some additional changes from the prior revised version, though none were especially groundbreaking.

Definitions

The definition of “Gift Card” was stricken in favor of “Prepaid Card,” which now has more limited definition as a card issued in, reloaded by, and redeemable for Fiat Currency only.

The definition of “Principal Stockholder” was expanded to include individuals with multiple types of equity interests, not just capital stock.

Material Changes to Business

As mentioned above, the final BitLicense regulation will require a Licensee to obtain approval from NYDFS before introducing materially new products, services or activities or materially changing an existing product, service or activity.  There is no further explanation of what would constitute a “material” change, but Superintendent Lawsky in his speech offered as an example of a material change a company changing from a wallet service to an exchange service.

Change of Control Provision

As in the prior version, the final regulation requires that a person must obtain approval from NYDFS before acquiring control of a Licensee. Superintendent Lawsky noted in his speech that an officer or director is not necessarily a control person.

Further, the updated rule requires that, in connection with a request that NYDFS approve a proposed merger or acquisition of all or substantial part of the Licensee’s assets, the Licensee will have to submit a written plan of merger or acquisition. The prior version of the rule required a less specific “proposed plan” be submitted.

Examinations

The prior rule contained two rationales for permitting the Superintendent to undertake examinations:  to determine if the Licensee was financially sound and to assess its safety and soundness practices. The new rule introduces a new rationale:  to test the company’s compliance with applicable laws, rules, and regulations.

AML Program

The old and new versions of the rule require reporting of certain virtual currency transactions of $10,000 or more to NYDFS, but the new version clarifies that this obligation applies to those transactions not subject to federal reporting requirements because they do not involve fiat currency. In addition, as Superintendent Lawsky explained in his speech, companies subject to SAR reporting requirements under federal law will not have to file SARs with NYDFS. All companies now have an ongoing obligation to monitor for suspicious activity, even if they are not obligated to file SARs in New York.

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