New York Makes Crypto Compliance More Expensive | PaymentsSource

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New York State Superintendent of Financial Services Adrienne Harris said the new regulations will help fund the agency’s new staff.

Christopher Goodney/Bloomberg

New York has updated nationwide digital currency regulations, requiring cryptocurrency businesses to follow similar rules as more mature financial industries such as banking and insurance, a move that also comes with higher costs.

Adrienne Harris, New York’s Superintendent of Financial Services, announced on Monday that companies holding a BitLicense issued by the NYDFS will be subject to rules modeled after banking supervision.

This means companies will have to meet higher standards for capitalization, cybersecurity protection and anti-money laundering protocols. The regulation also governs how companies will be assessed for the costs of monitoring them in accordance with banks and insurance companies.

New York competes with other cities, like Miami, to attract cryptocurrency companies. The new fees could create pressure for new companies trying to enter the New York crypto market, according to Roy Carrasquillo, a New York-based attorney who specializes in fintech law. .

In the short term, new cryptocurrency companies might look elsewhere. “It’s going to get more expensive and crypto companies tend to look for less regulated jurisdictions,” Carrasquillo said.

A BitLicense application costs $5,000, according to the Capital Fund Law Group, adding that the total license cost is based on company size. There are currently around two dozen companies that have a Bitlicense, including Ripple, Coinbase, and Block. Under the new rule, companies with a Bitlicense license will be billed quarterly, with a final valuation at the end of each fiscal year, a figure that is likely to be larger.

One of the concerns passing the rule will bring is the added deterrent effect it will have on smaller applicants, said John Lore, managing partner of Capital Fund Law Group.

“The BitLicense application process is already expensive, extremely difficult to obtain, and full of uncertainty,” Lore said, adding that very few successful applicants appear to have obtained licenses. “Shifting oversight costs to BitLicense holders with little indication of how those costs will evolve will likely continue to discourage cost-sensitive BitLicense entrants.”

The NYDFS did not provide comment for this article. In a statement, Harris said regulation provides the department with additional tools and resources to regulate the virtual currency industry now and in the future as innovators create new products and use cases for digital assets.

The calculator for the new fees for crypto businesses is expected to be released later this spring. New York State regulatory fees for other financial institutions often run into the hundreds of thousands of dollars.

New York’s cryptocurrency license dates back to 2015, when state regulators issued money transfer rules for bitcoin exchanges and other companies that adopted digital assets. The rules at the time were considered strict, although less draconian than countries that banned cryptocurrency altogether, such as China.

NYDFS proposed the new rules in December, noting that the higher fees would allow it to hire more staff to oversee cryptocurrency companies. Cryptocurrency businesses in general have come under increased regulatory scrutiny over the past year due to market fluctuations and the crash of the FTX.

The impact for businesses will be “significant,” Carraquillo said, although the overall impact on fintech regulation in New York City won’t be significant, given that there aren’t many businesses with existing BitLicenses.

“And in the long term, crypto companies will always be drawn to New York given its status as a financial hub,” Carraquillo said.

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