New York makes crypto compliance more expensive | Payment source

Christopher Goodney/Bloomberg

New York has updated the state digital currency regulationswhich requires cryptocurrency firms to follow rules similar to 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 Monday that companies holding a NYDFS-issued BitLicense will be subject to rules modeled after banking supervision.

This means companies must meet higher standards for capitalization, cyber security protection and anti-money laundering protocols. The regulation also regulates how companies are to be assessed for the costs of their supervision in line with banks and insurance companies.

New York competes with other cities, such as Miamito attract cryptocurrency companies. The new fees could create pressure for new firms trying to enter New York’s crypto market, according to Roy Carrasquillo, a New York-based attorney specializing in fintech law.

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

A BitLicense application costs $5,000, according to Capital Fund Law Group, adding the total cost of the license is based on the company’s size. There are currently about two dozen firms that hold a Bitlicense, including Ripple, Coinbase and Block. Under the new rule, firms with a bit license will be billed quarterly, with a final assessment at the end of each financial year – a number that is likely to be larger.

“This regulation gives the department 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,” Harris said in a release.

The calculator for the new fees for crypto firms is scheduled to be released later this spring. New York State Regulatory Fees for other financial institutions are often in the hundreds of thousands of dollars.

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

NYDFS suggested new rules in December, noting that the higher fees would allow it to recruit more staff to oversee cryptocurrency companies. Cryptocurrency firms in general have been under greater regulatory scrutiny over the past year due to market volatility and the FTX collapse.

The impact on companies will be “significant,” Carraquillo said, although the overall impact on fintech regulation in New York will not be large, given that there are not many firms with existing BitLicenses.

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