The state of New York has been progressive when it comes to the advancement of cryptocurrency businesses. For this purpose, the New York Department of Financial Services (NYDFS) announced that they will be granting conditional licenses. Through these, start-ups would be allowed to partner with existing licensed entities for crypto assets operations. The NYDFS had initially issued regulations pertaining to cryptocurrencies in June 2015 as 23 NYCRR Part 200 (Bitlicense Regulations). Since then the state of New York has granted several licenses to crypto businesses. However, the licensing regime to obtain a BitLicense is a rigorous task requiring extensive compliance norms. This may not always be perceived in a positive sense, especially for the start-up ecosystem as it requires an influx of expenditure. To resolve this, the NYDFS to “encourage, promote and assist banking, insurance, and other financial services institutions to effectively and productively locate, operate, employ, grow, remain, and expand in New York state”, which is also the reason for the incorporation of NYDFS as per N.Y. Fin. Serv. Law § 102(a), has introduced a ‘conditional licensing regime’. This shall allow new entrants in the crypto sector to get a conditional BitLicense, by working in collaboration with an authorised holder of a BitLicense or a holder of a New York limited purpose trust charter, commonly a Virtual Currency (VC) entity. The holder of the conditional BitLicense is required to work with an authorised licensee during the time prescribed. The framework shall also enable companies that have not yet ventured upon the crypto space to grow their business in this sector. The framework is essentially aimed for a) growth stage companies; b) start-ups; c) VC entities; d) New York established companies; and e) companies operating outside New York. The conditional licensee shall venture with the authorised licensee for any support with regards to capital, API structure, privacy systems, infrastructure requirements, personnel, or any other attributes required. The NYDFS’s aim is that the conditional licensee shall obtain a full BitLicense in time. As per, 23 NYCRR 200.4(c), the Superintendent may suspend or revoke the conditional license or impose any reasonable restriction which, “may be subject to heightened review, whether regarding the scope and frequency of examination or otherwise”.
The conditional licensing regime is sure to advance the cryptocurrency ecosystem in the state of New York if successful, other states in the United States should follow the regime to enable growth stage companies to venture into the cryptocurrency arena. The conditional BitLicense regime has been currently posted for comments on 24th June 2020 on NYDFS’s website.
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