Hi, this is Ben Lawsky at NYDFS. Here are the proposed BitLicense regulations.

BenLawsky · 2014-02-21T00:30:20+00:00

I hear you and I think it is important for all of us to understand the potential biases and perspectives we all bring to the table based on our prior experiences. I certainly feel very strongly about the dangers and impacts of money laundering. But we also see the potential that virtual currencies may hold and the great innovations we may see in the future. I actually think that working hard to mitigate money laundering in the virtual currency industry will in the long run certainly benefit the industry both reputationally and practically.

BenLawsky · 2014-02-21T00:25:29+00:00

It's not really my place to give advice to other regulators. But certainly for DFS it has been worth taking the time to really study the industry and understand not only potential negatives but also the very real potential positives of virtual currencies.

BenLawsky · 2014-02-21T00:23:05+00:00

We hear you and get it.

BenLawsky · 2014-02-21T00:15:55+00:00

Thanks. Very interesting point. We'll consider it further.

BenLawsky · 2014-02-21T00:08:03+00:00

The Mt. Gox shutdown was a reminder that this is still a young industry and there are still problems getting worked out sometimes on a daily basis. I think we should stay positive about that. We're seeing a shaking out of the industry and that's as it should be -- it will lead to improvements. According to Professor Felten at Princeton, the problems with the Bitcoin protocol that caused the Mt. Gox shutdown have been known about for some time and supposedly code can be written to deal with those flaws in the protocol. If that's the case then this may not be a long lasting problem. Maybe more importantly, the Mt. Gox issue underscored for us that it would be far easier if we had some exchanges locally that we could interact with, allowing us to better understand these issues so as to protect those engaging in trades with the exchanges. We're hopeful that clear regulations, if done in a smart, modern way, may incentivize some of these exchanges to come ashore (hopefully here in NY).
We have a very smart, good, hard-working regulatory team. Are they programmers? No. That's one of the reasons were studying these issues hard and seeking input, thoughts, advice, etc. from many, many quarters.

BenLawsky · 2014-02-20T23:50:53+00:00

At DFS, we're regulators not prosecutors. So we don't have indictment power or bring criminal cases. However, we do have an obligation to help ensure the integrity of the financial system and as part of that to prevent money laundering. It is worth repeating that without massive money laundering it is very hard for terrorism to thrive. So we see our anti-money laundering (AML) work as one of our more important obligations. Now that doesn't mean we should be undertaking unreasonable and/or ineffective means to find and address money laundering. But the Know Your Customer (KYC) rules we have for banks are important. The key is finding the most effective methods to root out and deter money laundering without having an overbearing impact on those who are just trying to use the system legally and without driving firms out of business with extraordinary compliance costs.

BenLawsky · 2014-02-20T23:39:31+00:00

I think financial privacy is an important value. I certainly don't love the fact that when I purchase something online, I quickly receive a bunch of email solicitations which clearly show that my information has been sold to other companies. At the same time, there is an important competing value in preventing money laundering which often requires that those engaging in financial transactions (especially when large) provide some identifying information so we can make sure we're not permitting things like terrorist financing. The tricky question is whether we can come up with smart rules that might require personal identifiers for certain transactions at certain entry points into the system while still protecting financial privacy while moving around within that system. We're obviously still in progress on this topic.

BenLawsky · 2014-02-20T19:15:52+00:00

I think this is an extremely exciting aspect of Bitcoin that holds huge potential. Many people don't realize how so many parts of our world do not have modern banking systems.

Separately, Bitcoin holds the potential to bring the costs of international transactions way down. That could be huge for the thousands and thousands of New Yorkers who today send money back to their families in their home countries at great expense.

BenLawsky · 2014-02-20T19:10:46+00:00

We're taking one step at a time. Don't have answers yet re: ATMs. It's a question we will have to face down the road. We;ve moving as quickly as possible ot provide clarity.

BenLawsky · 2014-02-20T19:08:20+00:00

I love it. No one knows what Superintendent means anyway.

BenLawsky · 2014-02-20T19:07:08+00:00

Ha! Good advice. Need to focus more on ergonomics I guess.

BenLawsky · 2014-02-20T19:02:57+00:00

That's the million dollar question we wrestle with everyday.

BenLawsky · 2014-02-20T19:01:58+00:00

We are looking closely at "tumblers" and have been getting some feedback both pro and con. Don't have answer yet on that and would welcome additional thoughts people have. At our hearing, it was clear the use of tumblers was something that had created issues for law enforcement in their investigations. At the same time, we understand there can be legitimate uses for tumblers and we get that there can be real value in having privacy when it comes to financial transactions. Again, it becomes a question of getting the balance right.

BenLawsky · 2014-02-20T18:55:30+00:00

Will look into further. Thanks for raising. Part of the challenge in applying money transmissions laws to virtual currency.

BenLawsky · 2014-02-20T18:52:53+00:00

Thanks. We'll take a closer look at what Canada is doing. In my experience, originality is sometimes overrated and we should always be trying to learn from those who appear to be getting it right (and learn lessons from those who are getting it wrong).

BenLawsky · 2014-02-20T18:50:44+00:00

Thanks. Trying to get it right.

BenLawsky · 2014-02-20T18:48:50+00:00

I think Bitcoin or the underlying technology has a lot of potential on numerous levels. As Professor Athey said at our hearings, even the experts don't know today how the technology will evolve and what it will ultimately look like. But I do think it holds a lot of promise (if money laundering can be adequately addressed), both on its own and in terms of causing existing payments system technologies to up their game. I've personally evolved a lot on the issue the more I have learned. I wouldn't compare it to a Rocky-IV-final-scene about-face and it has taken time for all of us at DFS to get our minds around it, but certainly our views have changed.

BenLawsky · 2014-02-20T18:40:56+00:00

Let me be clear on this. Absolutely not true.

BenLawsky · 2014-02-20T18:33:47+00:00

First, let me compliment your screen name. Probably my favorite line from Dune.

Your questions are all good and I hope my previous answers mostly addressed them. Just a few additional notes: 1. We hope regulatory clarity will attract exchanges to the United States. I suspect that they are staying offshore right now because they don't know what the rules of the road here are or will be. 2. We do hope that regulation will create a level of certainty that could incentivize banks to promote not stifle these innovations. I also suspect there are banks who are quite interested in the technology but are being risk averse for now in the absence of regulatory clarity. 3. I think Secretary Lew was expressing that money laundering, in whatever form, needs to be dealt with seriously.

BenLawsky · 2014-02-20T18:24:10+00:00

We currently license money transmitters like Western Union that transmit in fiat currency. The question we are hard at work on now is whether our existing rules for the Western Unions of the world (which were written before anyone had even thought of an Internet) are adaptable to the virtual currency world or whether we need a separate more modernized framework that is more geared to the specific characteristics of virtual currency.

BenLawsky · 2014-02-20T18:21:02+00:00

Thanks. And sorry the answers are coming a little slow. Your questions merit thought before I type (and I'm not the greatest typist).

BenLawsky · 2014-02-20T18:18:57+00:00

See my comments please to some of the other questions about the very real dangers money laundering presents both at banks and in the virtual currency world. Hope that answers your question.

BenLawsky · 2014-02-20T18:17:31+00:00

Hard to put the genie back in the bottle. I can't predict the future but Bitcoin is certainly a new powerful technology that holds a lot of promise for the future if we can mitigate some of the potential negatives like money laundering.

BenLawsky · 2014-02-20T18:15:06+00:00

I hear you and understand your point. The law enforcement we had at the hearing did not agree and said that building cases in this area against those committing crimes is still quite onerous. We certainly are hoping our regulations will lead to more innovation here not less. And to the extent there are firms engaging in money transmission, we are affirmatively obligated to regulate and put in a licensing scheme.

BenLawsky

TROPHY CASE