'We Can't Exclude New Yorkers': Startup Bites the BitLicense Bullet
The digital currency industry reacted warily to a model framework for regulating such firms released Tuesday by the Conference of State Bank Supervisors, arguing the language is too vague and treats digital assets like normal money.September 15
WASHINGTON Virtual currency made another significant step Tuesday toward becoming legitimate in the eyes of regulators as the Conference of State Bank Supervisors finalized a model regulatory framework for the nascent industry.September 15
Circle Internet Financial, the Bitcoin services company and wallet provider, has become the first company to receive a BitLicense from the New York State Department of Financial Services.
The announcement Tuesday comes amid an outbreak of worry from virtual currency startups in the young industry that has led many of them to pull their services from customers in the Empire State.
A portion of the BitLicense application requiring applicants to acknowledge their current or prior virtual currency business operations in other states is putting Bitcoin companies in compromising situations in which they risk outing themselves as unlicensed money transmitters as a consequence of their efforts to be compliant. Most of the states require money transmission licenses, but it's not always clear when and each state has different rules on it.
Sean Neville, a Circle co-founder and its president of product and operations, said his company has engaged in money transmission of Bitcoin outside New York State, but it wasn't worried when it came to admitting so on the BitLicense application.
"It wasn’t a concern for us. We had always gone through the front door and made regulators aware of what we were doing," he said. "Our intent was never to stop just with Bitcoin."
The BitLicense announcement coincides with the company's rebranding of its mobile Bitcoin wallet app to Circle Pay, reflecting added features like users' ability to hold, send, receive and convert U.S. dollars in addition to Bitcoin, link credit or debit cards and bank accounts, higher spending limits and FDIC-insured deposits (held at a third-party bank).
Users can choose whether they hold bitcoin or dollars, with the option to switch between the two without fees. The company indicated plans to add more currencies in the future in a blog post.
Circle Pay with all its enhancements is obviously a money transmission business, Neville said, adding that the company certainly needs a license for the transfer of government-issued money as well as digital currencies, but is unwilling to leave New York customers behind.
"After some improvement [the BitLicense is] still not perfect but for us, we are clearly a custodian of funds and a consumer financial institution, so if we want to realize our vision of serving customers everywhere globally and help everyone everywhere transfer value over the Internet, we can't exclude New Yorkers," he said.
Circle initially objected to a number of elements of early BitLicense drafts. Crafting a perfect regulatory framework for startups is perhaps impossible. But Neville said the DFS had made enough positive amendments for Circle to move forward with its efforts to comply.
One of its strongest objections was against the lack of an on-ramp for smaller companies, of which there are many and from which some of the most innovative ideas in the space arise. "We don’t want just one or two companies to be in the space," Neville said. "We really do need an ecosystem where there are multiple parties improving one another."
However, he clarified Circle is not one of those smaller and more vulnerable startups. The company has raised $76 million to date through three rounds of venture capital funding, the last of which was led by Goldman Sachs and China-based IDG Capital in April.
"We're not jumping up and down and cheering for regulation, but as a financial institution we're in a slightly different position as some companies in the ecosystem," Neville said. "We're subject to regulatory oversight whether we like it or not."