The heads of China’s 3 biggest crypto exchanges penned an open letter to Benjamin Lawsky, Superintendent of the New York Department of Financial Services (NYDFS), explaining their concerns and recommended changes for his Bitlicense proposal.
Since released, the proposal has come under increasing fire from many within the Bitcoin community as being far too restrictive. Some argue that the proposed regulations would stifle the development of digital currency.
The joint letter further demonstrates the close working relationship between Huobi, BTC China and OKCoin, which together, reportedly dominate with over 60% of the world’s Bitcoin trading volume. Having collectively experienced the PBOC’s crackdown, their heads jointly withdrew from the Beijing Bitcoin Summit and acceded to PBOC requests to remove margin and short trading. Shortly thereafter, they took similar steps in their international expansion toward more accommodating shores, opening offshore bank accounts, launching USD-based trading and restoring previous services.
It is with this backdrop that they are stakeholders in the proposal, not just spectators. While expressing their “great appreciation” for the proposed regulatory framework, they outline three areas of concern in the proposal:
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The implication from the proposal is that a license is required for any business engaging in virtual currency activity- even with “one” New York resident. This would impede the development of digital currency outside of New York. The letter recommends “to revise the definition of ‘virtual currency business activity’ to clarify that BitLicenses are only required from virtual currency businesses that have availed themselves of the privilege of conducting activities within New York, thus invoking the benefits and protections of New York laws.”
Interesting is that this implicitly indicates that within the state of New York, they believe regulations would be too onerous and would impede development. Therefore, keep these rules in New York only (unless perhaps their other 2 points are addressed).
The proposal indicates that licensees will have to hand over information to NYDFS upon request, but “the NYDFS has no comparable right when examining New York-licensed money transmitters.” The requirement should be revised to handing over information “to [the] extent that they relate directly or indirectly to the licensee.”
Enhanced Due Diligence on Customers
The proposal required enhanced due diligence (EDD) on non-US customers. EDD should only be required if the customer is from the same jurisdiction as the licensee.