The reluctance of New York State regulators to provide clarity or enforce their own policies begs the question: Why should exchanges spend the time and money to obtain a BitLicense in the first place?
The following release was written by: Max Dilendorf, Esq. of Dilendorf Law Firm PLLC, NYC’s Top Law Firm — In 2021, according to CNBC, cryptocurrency scammers stole $14 billion from traders. In the financial capital of the world, however, there is no feeling of urgency to help these victims.
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The New York State Department of Financial Services (DFS) adopted the BitLicense in 2015 to regulate cryptocurrency exchanges that operate within the state. The BitLicense was supposed to ensure investor protections in the burgeoning cryptocurrency space by mandating BSA/AML compliance.
In practice, the BitLicense has been an impediment to the cryptocurrency industry in New York, with some exchanges opting to leave the state rather than pay high application fees, or comply with “Orwellian” customer data disclosures. There is also a contradictory “self-certification” process, allowing exchanges to add tokens to their platforms without explicit DFS approval. According to the plain text of the statute, these tokens should require BitLicenses themselves.
The stringent application requirements may be justified if DFS was adequate in its responses to aggrieved consumers. My firm regularly represents victims whose funds were stolen from cryptocurrency exchanges. Before initiating recent action against a BitLicensee, my client attempted to file a complaint against the exchange through DFS. DFS failed to return any of my client’s calls.
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Even worse, the ambiguities surrounding BitLicense applications and enforcement have raised more questions than answers for lawyers attempting to advise clients. Why should a new exchange apply for a BitLicense if DFS has been found to not hold up its end of the bargain and protect New York investors? Would they be better off risking enforcement measures from a regulator that has demonstrated reluctance to follow up on violations of its own policies?
Due to current DFS failures in enforcement, the BitLicense system is imbalanced. Its disadvantages are outweighing its benefits, and the application process has become prohibitively costly and time-consuming. My firm is hopeful that the Adams administration will work effectively with state officials in Albany to determine how the BitLicense can once again, if at all, reach equilibrium.
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