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New York State Department of Financial Services Proposes Framework for a Conditional BitLicense

In 2015, the New York Department of Financial Services (NYDFS) finalized rules creating the BitLicense for virtual currency exchanges operating in New York state. New York is currently the only state to have a licensing regime specifically for virtual currency exchanges.

The industry has bemoaned the BitLicense since it was proposed. Critics say that the process for obtaining the bit license, which is similar to the process for creating a bank, is too onerous.  Nevertheless, over the last five years the DFS has granted about two dozen BitLicenses. Most of the largest crypto-fiat exchanges have one. Still, it serves as a barrier to entry to the New York marketplace.

The original BitLicense regulation created a registration category called “conditional licensees.”  However, there were no guidelines for how conditional licenses would be granted until now. At the end of June 2020 DFS issued the Request for Comments on a Proposed Framework for a Conditional BitLicense. The DFS conditional license proposal would permit a new entrant to operate under the supervision of an existing BitLicense holder during the term of a conditional BitLicense. Under the proposed framework, a conditional licensee would collaborate and engage with an existing BitLicense holder for services and support, including structure, capital, systems, personnel. The conditional licensee is meant to serve as an on-ramp for new industry entrants that hope to obtain a BitLicense in the future.

Under the proposal, the DFS maintains regulatory oversight of conditional licensees. Applicants for conditional licenses have to submit a copy of a service level agreement with an existing Bitlicensee holder to the DFS for approval and agree to DFS supervision before DFS will grant a conditional license.

Comments to the DFS’ conditional BitLicense proposal must be submitted by Aug. 10, 2020.

©2020 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume X, Number 191

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About this Author

William B. Mack, Greenberg Traurig Law Firm, New York, Finance Law Attorney
Shareholder

William B. Mack is part of the firm’s government affairs and financial regulatory and compliance groups. He is experienced in advising companies on regulatory and compliance matters relating to the Securities and Exchange Commission regulations, the Exchange Act, Anti-Money Laundering laws and Financial Industry Regulatory Authority (FINRA) rules.

William’s practice involves all aspects of broker-dealer regulation, including Self-Regulatory Organization (SRO) membership, supervision, employment, research, soft dollar arrangements, chaperoning of...

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India L. Sneed Associate Government Law & Policy
Associate

Having worked in New York City government in various capacities, India Sneed has an intimate understanding of how to navigate the complexities of local government. India focuses her practice on administrative law and government affairs, as well as economic development and financing initiatives before government agencies.

India served as Chief of Staff to the 41st District Councilmember where she oversaw the legislative, budget, and community engagement priorities led by the Councilmember. Prior to that, she was Assistant District Attorney for Kings County where she prosecuted criminal offenses and was appointed to the Investigations Division – Civil Rights Bureau, as well as Brooklyn Young Adult Court.

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