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.