DFS Announces Cryptocurrency Initiatives and Potential BitLicense Reform

June 30, 2020

This past week, the New York State Department of Financial Services (DFS) announced several measures focusing on the virtual currency industry, including a proposed initiative to allow conditional licensing under the BitLicense framework and final guidance on self-certifying the use of digital coins. DFS’s announcement comes following the five-year anniversary of the BitLicense announcement.

On June 24, 2020, DFS announced a proposed conditional licensing framework, which would permit entities to apply for a conditional license so long as they partner with an existing entity that has already been licensed by DFS to engage in virtual currency business activities (e.g., a company that already has a BitLicense or limited purpose trust charter).

In addition to the conditional licensing framework, DFS announced final guidance for virtual currency businesses to self-certify the use of new digital coins, which built on proposed guidance that was issued in December 2019. DFS-regulated virtual currency businesses will be able to self-certify the use of new coins (without prior DFS approval), provided they have in place a coin-listing policy that has been approved by DFS. Before engaging in virtual currency business activities using a new coin (e.g., providing liquidity, custody, or other services), the company must provide written notice to DFS of its intent to do so, including details of its specific usage and purpose. Not surprisingly, DFS has stated that regulated companies cannot self-certify coins that are designed to circumvent existing law, including privacy coins.

DFS has published a helpful infographic outlining the coin-listing process, including instances where self-certification is permissible. DFS will also begin maintaining its own list of approved coins that all licensed virtual currency businesses can easily adopt. This list will be referred to as the “DFS Greenlist,” and press reports indicate that the initial tokens listed are Bitcoin, Bitcoin Cash, Ethereum, Gemini Dollar, Paxos Gold, and Paxos Standard.

In short, it appears that DFS is taking steps to streamline the requirements of the BitLicense and promote the successful expansion of the virtual currency industry in New York. We expect DFS to continue to reform its licensing requirements going forward, in consultation with the industry.

If you have any questions regarding DFS or its virtual currency licensing program, please contact Anthony Tu-Sekine, Andrew S. Jacobson, or your primary attorney in Seward & Kissel’s Blockchain & Cryptocurrency Group.