In 2015, New York became the first state in the country to require virtual currency businesses to obtain a license, which has become commonly known as the BitLicense. Companies must obtain a BitLicense to engage in “virtual currency business activity” in New York, which is broadly defined in New York’s virtual currency regulation and includes:
- Receiving virtual currency for transmission or transmitting virtual currency;
- Storing, holding or maintaining custody of virtual currency on someone’s behalf;
- Operating a business that buys and sells virtual currency;
- Operating a business that performs virtual currency exchange services;
- Controlling, administering or issuing virtual currency.
Obtaining a BitLicense has historically been challenging and time consuming. Currently, obtaining a license under the BitLicense program requires an initial $5,000 application fee. However, the actual cost of obtaining a BitLicense is significantly higher. Companies frequently spend many times that amount while preparing a BitLicense application and are also subject to capital requirements that are determined by NYDFS.
NYDFS has taken certain steps in recent years to simplify and streamline the BitLicense approval process. For example, NYDFS now permits entities to obtain conditional license approvals if they partner with existing licensees. NYDFS has also reduced the scope of approvals required for existing licensees to expand their activities. Prior to June 2020, NYDFS required existing licensees to obtain its prior approval before adopting or listing new cryptocurrencies. In June 2020, NYDFS issued guidance that streamlined this process, including creating a framework for entities to self-certify the use of new cryptocurrencies. The guidance also creates a framework for listing cryptocurrencies that are permitted for cryptocurrency activities of all regulated entities without NYDFS’s prior approval (known as “Greenlighting”), an action which also previously required specific prior approval. These recent steps to reduce the regulatory burden on virtual currency activity in New York stand in contract to the newly created annual assessment fee.
The new assessment fee is designed to offset the operating expenses of NYDFS that are attributable to regulating cryptocurrency. NYDFS currently assesses similar fees on other institutions it regulates, including banking and insurance companies. NYDFS Superintendent Adrienne Harris stated that the additional fees on crypto companies will be used to “empower [NYDFS] to build staff with the capacity and expertise to best regulate and support this rapidly growing industry.” While NYDFS has not yet announced how much the newly assessed fees will cost, similar fees assessed on other NYDFS licensees can cost businesses tens of thousands of dollars annually.
The provision of the Fiscal Year 2023 budget allowing NYDFS to assess fees on crypto companies takes effect on June 8, 2022 (60 days after the budget bill was signed into law). Once the law takes effect, NYDFS will likely begin the process of developing a formula or payment schedule to assess fees. Businesses holding a BitLicense should begin preparing for these additional fees in advance of the law taking effect.
