A Parliamentary Treasury Committee has published an extensive report on the regulatory environment pertaining to cryptocurrency in the UK. As part of the report, a good amount of ink was dedicated to the global regulatory approach regarding blockchain based digital assets.
One regulatory entity received pointed criticism: The regulatory approach of the New York State Department of Financial Services (NYSDFS) and its much maligned “BitLicense.”
To quote the specific submitted evidence in the Parliament report:
“One famous example is New York State Department of Financial Services’ “BitLicence”, which came into force in 2015. The BitLicence regulations required various different types of cryptocurrency market participants to be registered with the NYSDFS. Regulatory arbitrage opportunities within the US, combined with a strong anti-regulatory sentiment in the crypto world at that time, meant that a huge proportion of New York’s cryptocurrency business moved out of New York State as a result of the regulation in order to avoid its effect.
The effects of the BitLicence continue today, with New York State lagging behind in terms of volume of cryptocurrency businesses compared to other comparable US states. The BitLicence is an extreme example of poorly executed regulation but illustrates strongly the need for cryptocurrency regulation to be developed in tandem with industry, and for it to be coordinated with other jurisdictions to avoid the UK being an outsider with overly burdensome regulation that leads the crypto industry to move to Switzerland, Gibraltar or another jurisdiction that is actively working to attract cryptocurrency businesses.”
The problem with overly aggressive regulation is that people and companies will vote with their feet. The author of the above highlights this fact as New York, a global financial center, appears to be undermining its own competitiveness by regulating first and asking questions later. This also highlights a pressing problem across the US. The reality that Fintechs, in general, must avail themselves to not just one regulator – but more than 50 if they seek to operate nationwide.