NEW YORK (InsideBitcoins) — Bitcoin industry heavyweights have publically expressed their opinions on the New York State Department of Financial Services (NYDFS) BitLicense proposal. Citing American legal precedents, the top three Chinese Bitcoin exchanges, BTC China, Huobi and OKCoin, made a strong case for revisions to the proposed regulations. The three exchanges account for the lion’s share of bitcoin’s global trading volume.
Signed by Bobby Lee, Lin Li, and Mingxing Xu, the CEOs of the three exchanges, the letter to Superintendent Benjamin M. Lawsky expressed their concern for the far-reaching proposals issued by the NYDFS, but admitted that while the regulations were intended for New York-based companies, their impact would be felt globally.
“We express our great appreciation for the historic move by you and the NYDFS to propose a tailored regulatory framework for the virtual currency industry,” the letter stated. “While we are companies organized under the laws of the People’s Republic of China, we believe that it is not only appropriate, but also necessary for us to express our thoughts on certain aspects of the BitLicense Proposal because the blockchain protocol is decentralized, because regulations in New York have long been given great deference and are modeled after by regulators around the world, and because the BitLicense Proposal as drafted appears to cover us.”
The executives listed three main concerns: 1) The regulations should be modified to apply to only businesses with a “meaningful New York connection,” 2) Recordkeeping should be less onerous and 3) Customer due diligence should only apply to transactions occurring within the same jurisdiction.
A meaningful connection to the State of New York
“By defining ‘virtual currency business activity’ as the conduct of certain activities with ‘a’ New York resident, the BitLicense Proposal would arguably subject the Companies to licensing requirement even if they engage in trivial amounts of business with New York residents,” the letter said.
A “single New York customer” would be enough to trigger the regulation of the Chinese exchanges to the BitLicense regulations, the CEOs said.
“If the proposal were already in effect, without the NYDFS’s prior approval, BTC China could not have rolled out its mobile exchange for virtual currency in China; Huobi could not have acquired a Chinese provider of virtual currency storage services; and OKCoin could not have launched an international version of its trading platform.”
The exchanges would also have been required to submit the fingerprints of Chinese employees to the FBI, the three executives said. Citing American case law, the letter contends that the regulations should be modified to exclude firms with “inconsequential” contact with New York.
Access to records and books
The Chinese companies also blanched at the prospect of the NYDFS’s requirement to provide immediate access to “all facilities, books, records, documents” and other information, including the internal records of corporate subsidiaries.
“The provision would also permit the NYDFS to examine a large international holding company’s books and records as a result of the company’s control of a tiny virtual currency subsidiary that is negligible in the grand scheme of things. The internal records of such [a] holding company may not relate to either New York or virtual currency, and may be highly proprietary and confidential.”
Customer due diligence
The final point of contention regarded the “enhanced due diligence” (EDD) of customers required by the proposed BitLicense regulations. The executives contended such due diligence should apply to customers based in the same country as the licensee and not to whether the customer is a U.S. citizen or not.
The letter closed: “Along with virtual currency businesses in the United States and elsewhere in the world, we look forward to assisting the NYDFS in its endeavor to make the BitLicense regime an exemplary framework that thwarts financial crimes, safeguards customer assets and unleashes the enormous potential virtual currency and its underlying blockchain protocol have to offer.”
The comment period is scheduled to end in early September, though there has been a broad industry push to convince the NYDFS to extend the comment deadline.