The New York State Department of Financial Services (DFS) launched a series of virtual currency initiatives last week meant to expand access to and clarify rules regarding the use of virtual currencies in the state. First, DFS has proposed a conditional licensing framework for virtual currency providers. In connection with this framework, DFS has signed an MOU with the State University of New York (“SUNY”) to launch a new virtual currency program. Second, DFS has issued final guidance regarding self-certification of new coins and the process by which DFS “Greenlists” coins. Third, DFS has issued new online virtual currency-related resources for the benefit of market participants.
As noted above, DFS has proposed a conditional licensing framework for virtual currency. As brief background, in 2015, DFS issued its virtual currency or “BitLicense” regulation, 23 NYCRR Part 200. Since then, under either that regulation or the limited purpose trust company provisions of the New York Banking Law, DFS has granted 25 virtual currency licenses to providers (collectively, “VC Entities”). However, some entities have faced hurdles in obtaining BitLicenses because of the rigorous application process. Applicants typically must invest a significant amount of time and resources in order to fulfill regulatory requirements regarding governance, operational and compliance controls, and capital.
As a solution, DFS proposed the conditional licensing framework. The framework will allow entities that seek to enter the New York virtual currency market to obtain conditional operating licenses by collaborating with VC Entities for various services and support. This could include collaboration related to structure, capital, systems, and personnel. When a conditional licensee believes that it meets the applicable regulatory requirements, it may apply for a full BitLicense. The comment period for the proposed framework expires on August 10, 2020.
In connection with the proposed framework, on June 24, 2020, DFS and SUNY signed a memorandum of understanding (MOU) expressing their intent to launch a new virtual currency program, “SUNY BLOCK.” Under the terms of the MOU, SUNY will establish a VC Entity under a BitLicense or as limited purpose trust company. In turn, start-ups and emerging companies participating in SUNY BLOCK will be able to apply for a conditional virtual currency license. SUNY has said that the program will foster and diversify research opportunities and innovation from faculty, staff, students, and alumni.
Separately, also on June 24, DFS issued final guidance regarding the ability of virtual currency licensees to self-certify the use of new coins. DFS highlights in the guidance that, in the five years since it began authorizing VC Entities, some of these entities have asked to list new virtual currencies in addition to those included in their initial DFS applications. The guidance is meant to enable these entities to offer and use new coins in a timely and prudent manner. The guidance provides that a VC Entity that wishes to self-certify the use of new coins without the prior approval of DFS must create a coin-listing policy that meets the criteria set forth in the guidance. The guidance also establishes a process by which DFS will “Greenlist” or approve coins, a process that all VC Entities can easily adopt.
Finally, DFS has issued additional resources meant to give clarity to market participants. These resources include a “Notice of Virtual Currency Business Activity License Application Procedures,” which provides transparency into the license application process. This also includes FAQs that address questions identified through discussions with current and prospective virtual currency market participants.