In Trying to Regulate BitCoin, NY State May Also Impact Prepaid & Other Markets

by Tim Sloane 0

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Any regulations imposed by The New York State Department ofFinancial Services (NYDFS) will influence other regulators, so its BitLicenseproposal that lacks focus has received 3,700 responses.

This articleon the CoinDesk web site reviews comments made to the BitLicense proposal byAmazon, Walmart, and Western Union, most of whom are concerned that theregulatory construct can be interpreted far too broadly:

“TheNew York State Department of Financial Services (NYDFS) has today made publicover 3,700 comments it received regarding its BitLicense proposal. The moveprovides new insight into the organisations and individuals that have taken aninterest in the proposed regulation.

Perhapsmost notably, the full release included submissions from some of the largestbusinesses in the US, including e-commerce giant Amazon, retail juggernautWalmart and global remittance specialist Western Union.

Thefilings suggest that the BitLicense is being interpreted broadly by the legalrepresentatives of these companies, and that greater clarity is needed by theNYDFS to indicate the entities and financial products covered under themeasure.

Forexample, Amazon and Walmart’s filings took aim at what they consider the ‘broaddefinition of virtual currency’ to which the proposed regulation would apply incurrent form.

Amazonsuggested the wording could be read as applicable to some of its own products,particularly closed-loop digital payment methods, prepaid value cards andprepaid cards denominated in fiat currency. Similarly, Walmart advocated forthe addition of phrasing that would clearly exempt gift cards.”

Some comments focused on the lack of clarity around how ATMand Kiosk operations would be regulated:

“Bycomparison, Western Union submitted a much lengthier comment on the proposal,arguing that more oversight should be given to bitcoin ATM kiosks, and thatmore clarity should be added to the document to specify what indirect financialactivities would be considered as supportive of virtual currency transmission.

‘Itis unclear whether operators of kiosks would be required to be separatelylicensed as a VC licensee, or whether any oversight or other requirements wouldbe imposed on the physical locations that host kiosks or on the operations ofthe kiosks themselves,’ the filing reads.”

Less surprisingly, Western Union requested that all BitCoinrelated implementations be required to adhere to existing remittanceregulations rather than any new and different set of regulations:

“Further,Western Union expressed its interest that businesses that fall under theBitLicense be made to comply with all existing anti-money laundering (AML)requirements in addition to any new measures necessary given the risksassociated with virtual currency transmission.

‘WesternUnion believes that the NYDFS’ additional AML requirements for virtual currencytransactions should mirror current federal AML requirements for fiat currencytransactions,” the filing reads. “This approach would permit VCLicensees to draw upon existing federal regulatory guidance and the knowledgeof AML compliance personnel for purposes of determining how to comply with suchrequirements, where applicable.’ ”

The lack of discipline shown by regulators recently hasbecome a cause for some alarm in the payments industry. Mercator is preparing a publication thatreviews the Consumer Financial Protection Bureau proposed regulations forprepaid, but our current expectation is that the regulation is so complex andconvoluted that a common interpretation will likely need to be defined by thecourts. These CFPB proposed regulationsalso lack clarity regarding what prepaid segments are being regulated, buthopefully that issue will be refined before the final publication.

Now NY State issues regulations purported to be regardingdigital currencies but instead cover prepaid and other markets, at least ascurrently written. While recognizingthat regulators are not experts in the industries they regulate and that they arealso under intense pressure to “do something,” it still seems crystal clearthat they would help our economy and our citizens if they could just be moreprecise and clear when establishing regulations.


Overview by Tim Sloane, VP of Payments Innovation for Mercator Advisory Group

Read full story at Coin Desk