Cctober 6, zc

LlS Cfflce Cf Cenerul Counsel

Lunu v. Syrucuse
New York Stute Leurtment of llnunclul Servlces
Cne Stute Street, New York, NY ccc

"#$ %&'(')#* "#+,-./0'1)$ 20/-# 345 67.(/#& 85 %.&/ 399$ :0&/,.- 6,&0#)

Leur Mr. Syrucuse:

1hls letter ls submltted on behulf of Clrcle lnternet llnunclul, lnc. ("Clrcle') ln
resonse to the roosed Regulutlon of the Conduct of vlrtuul Currency 8uslnesses
seclfled ln Rulemuklng Notlce, z6 N.Y. Reg. ('uly z, zc) ("Proosed Rule') lssued by
the New York Stute Leurtment of llnunclul Servlces ("NYLlS').

Clrcle wus estubllshed ln August zc und ls locuted ln 8oston, Mussuchusetts. Clrcle
wus formed ln order to offer u sulte of servlces deslgned to muke lt slmle und convenlent
for consumers to trunsuct ln dlgltul currencles, ln urtlculur, 8ltcoln. 8ltcoln ls u
decentrullzed system bused on oen rotocols thut no government or cororutlon controls.
1here ure numerous consumer beneflts ussocluted wlth thls rotocol, lncludlng the ublllty to
send, recelve und send money ln u fuster, less exenslve und more secure munner.

ve ureclute the efforts of the NYLlS ln uttemtlng to estubllsh u regulutory
frumework for dlgltul currency

flrms und welcome the oortunlty to rovlde comments to

the Proosed Rule. Lstubllshlng regulutlons for new technologles, such us 8ltcoln, oses
slgnlflcunt chullenges for otentlul Llcensees who wlll be requlred to lmlement ollcles und
dedlcute sufflclent resources to comly wlth these luws. Slmllurly, the NYLlS wlll be tusked
wlth gulnlng u further understundlng of dlgltul currency technology (und reluted roducts
und servlces) und wlll need to dedlcute stuff to oversee otentlul Llcensees. 8ecuuse of the
these lmllcutlons, we belleve thut lt ls crltlcul thut the NYLlS move forwurd wlth the
Proosed Rule ln u thoughtful und dellberute munner und conslder ull fuctors, lncludlng the
rlsks und beneflts, before tuklng uctlon.

lor uroses of thls letter, we huve hlghllghted severul hlgh level ureus of concern
regurdlng the Proosed Rule followed by more detulled comments on vurlous sectlons.


1
lor the urose of thls letter, we ure uslng the hruses "dlgltul currency' und "vlrtuul currency' us
lnterchungeuble terms.

2
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Clrcle belleves there ure numerous ureus ln the Proosed Rule, whlch could
negutlvely lmuct consumers und buslnesses thut wlsh to utlllze dlgltul currencles. 1here ure
severul requlrements thut ure so burdensome (und ln some cuses neurly lmosslble to
comly wlth) thut lf the Proosed Rule were to be enucted ln lts current form, Clrcle would
huve no cholce but to exclude New York resldents from lts servlce.

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ve belleve the deflnltlon of vlrtuul 8uslness Actlvlty ls too broud. ve ugree thut
dlgltul currency flrms thut enguge ln certuln uctlvltles should be reguluted us money
trunsmltters. A dlgltul currency oerutor thut ucts us un lntermedlury, exchunger, und
custodlun of dlgltul ussets should be subject to overslght, however softwure comunles,
lncludlng oen source server softwure, mlnlng ool softwure rovlders, onllne wullet
softwure, or other oen source dlgltul currency rojects should be not be subject to
regulutory revlew. 1he Proosed Rule's deflnltlon of vlrtuul Currency 8uslness Actlvlty
ueurs to encomuss ull of these softwure cutegorles. ve feel thut thls custs too wlde u
net und would be detrlmentul to the develoment of the dlgltul currency lndustry. Note,
however, thut we were leused to see recent ubllc comments by Suerlntendent Luwsky
suggestlng thut these deflnltlons would be chunged to reflect thls dlstlnctlon.

F< 27# .1/0G?'1#D -.,1*#&01+ HB@IJCK &#L,0&#?#1/) .&# ,11#;#)).&D .1* 0?(&.;/0;.-

ve belleve the current AML regulutory frumework ut the federul level rovldes
udequute overslght of dlgltul currency flrms und there ls no need for some of the uddltlonul
rotectlons ln the Proosed Rule. 1he llnunclul Crlmes Lnforcement Network ("llnCLN')
flnullzed relevunt guldunce for vlrtuul currency flrms ln Murch zc. 1hese guldellnes clusslfy
whlch flrms should be reglstered us money trunsmltters und requlres those flrms to follow
ullcuble money servlce buslness regulutlons, whlch lncludes lnow Your Customer ("lYC')
rotocols, trunsuctlon monltorlng und regulutory reortlng. 1he Proosed Rule outllnes
new stuteseclflc AML requlrements thut ure elther dullcutlve undjor brouder thun llnCLN
rules. 1he AML requlrements ln the Proosed Rule ulso outllne recordkeelng requlrements
thut ure ut best extremely onerous, but for the most urt cunnot be met under the current
dlgltul currency rotocols. ve request thut the NYLlS reconslder these usects of the
Proosed Rule.

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1he Proosed Rule lmoses u wlde runge of requlrements over key buslness
declslons thut wlll muke lt very dlfflcult to bulld uglle, lnnovutlve dlgltul currency roducts.
lor exumle, the Proosed Rule stutes thut buslnesses must submlt new feutures und
roduct chunges to regulutors for revlew und rlor urovul. lnnovutlve comunles ln thls
suce wlll be constuntly develolng und dellverlng new roduct feutures, eseclully us thls
technology und consumer needs evolve und muture. Requlrlng rlor NYLlS urovul on
3
new roducts could negutlvely lmuct the ublllty to brlng new servlces to the murket ln un
exedltlous und efflclent munner. ln uddltlon, lt muy be dlfflcult for the NYLlS to ullocute
sufflclent resources to hundle whut could be u lurge volume of requests und rovlde
resonses ln u tlmely munner.

Cther ureus of concern lnclude the scoe of overslght und exumlnutlon uuthorlty
over Llcensees und Afflllutes, the ublllty of the Suerlntendent to set mlnlmum cultuljbond
requlrements und revlew certuln buslness trunsuctlons. lurther guldunce on crlterlu for
uctlons by the Suerlntendent ure needed us ure llmlts to thls uuthorlty to ensure thut the
NYLlS doesn't urbltrurlly regulute dlgltul currency flrms.

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*0+0/.- ;,&&#1;D E0&?)

ve belleve there ls un oen questlon us to the need for u seurute 8ltLlcense.
Current stute money trunsmltter luws muy be udequute for dlgltul currency flrms, eseclully
lf they were umended to uddress rlsks ussocluted wlth dlgltul currency trunsuctlons. 1hls ls
the urouch thut hus been effectlvely tuken by other stutes, such us 1exus und should be
consldered by the NYLlS.

At the very leust, we encouruge the NYLlS to develo u regulutory frumework thut
mulntulns u level luylng fleld by estubllshlng slmllur guldellnes for both dlgltul currency
flrms und other money trunsmltters. vhlle we ucknowledge there ure some unlque lssues
ussocluted wlth dlgltul currency due to the nuture of the technology, muny of the rlsks ure
slmllur to those osed by other reguluted money trunsmltters. 1here ure severul ureus ln the
Proosed Rule thut go well beyond whut ls requlred for other money trunsmltters. Cther
requlrements ln the Proosed Rule muy be relevunt to trudltlonul money trunsmltters, but
ure not covered by exlstlng New York money trunsmltter luws (!"#" cybersecurlty
requlrements). 1hese rules should be conslstently ulled to uvold regulutlng cometltlon ln
the murketluce.

ln uddltlon, muny dlgltul currency flrms huve other roduct offerlngs thut muy trlgger
exlstlng money trunsmltter llcenslng requlrements. Clven thut the Proosed Rule lncludes
most of the trudltlonul money trunsmltter requlrements, the NYLlS should clurlfy thut flrms
wlth u 8ltLlcense do not need to huve u seurute money trunsmlsslon llcense.

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.-- )0U#)

vhlle we belleve there ls u need for regulutory rotectlons for consumers, uny rules
enucted should be rlskbused und not udversely lmuct the consumer beneflts ussocluted
wlth dlgltul currency technology. ln conslderlng new regulutlons, the NYLlS should focus
on rlncllesbused regulutlons thut uddress the relevunt rlsks lnsteud of rescrltlve rules,
whlch muy qulckly become outduted glven the fustchunglng technology. Under u
rlncllesbused urouch, the NYLlS would stlll mulntuln udequute uuthorlty to use lts
4
exumlnutlon und enforcement owers to lmose more rescrltlve requlrements on flrms
on un usneeded busls und hold these flrms uccountuble for comllunce wlth relevunt rules.
1he NYLlS could then udjust the rules us u result of these uctlons und udjust the frumework
us u more muture dlgltul currency ecosystem develos.

ve feel lt ls lmortunt thut lnnovutlon ls not stlfled by regulutory burdens. An
unulogy cun be druwn to the develoment und lmlementutlon of credlt curds, whlch dutes
buck to the cs und 6cs. lt took muny yeurs for credlt curds to uchleve consumer und
merchunt udotlon. Slnce the eurly udotlon of credlt curds, consumer luws relutlng to these
roducts und servlces evolved over un extended erlod to uddress emerglng rlsks. vhen
new technology thut lmucted curds emerged, such us the lnternet, uddltlonul rules were
needed to uddress lssues not revlously contemluted. ln uddltlon to new regulutlons,
lndustry orgunlzutlons, such us Mustercurd und vlsu, develoed thelr own rules to rovlde
further governunce over urtlclunts ln the network und trunsuctlons. ve belleve thut
slmllur tyes of uctlvlty wlll tuke luce us the dlgltul currency lndustry mutures, lncludlng the
emergence of selfregulutory orgunlzutlons. ve belleve thut the NYLlS should tuke the
lessons leurned from these exerlences, us well us those from more recent emerglng
uyments, und uly the sume tye of rlncllesbused urouch ln develolng regulutlons
for thls dynumlc lndustry.

ve belleve thut the NYLlS should conslder some sufeguurds for smuller sturt u
orgunlzutlons or muke some dlstlnctlon us to the ullcublllty of the regulutlons for these
flrms thut muy ose less rlsk to consumers. lor thls technology to develo, lt ls lmortunt
for entrereneurs to be encouruged to enter lnto the murketluce. As currently
constructed, the Proosed Rule rovldes u burrler to entry for smuller flrms due to the
onerous requlrements uround cultul, AML, etc.

88< 6'??#1/) '1 Q(#;0E0; Q#;/0'1)

Q#;/0'1 399<3H1K V O#E010/0'1 'E B:0&/,.- 6,&&#1;D F,)01#)) @;/0>0/DC

8lockchuln und ubllc ledger technology huve muny use cuses outslde of uyments.
1he roosed deflnltlon of "vlrtuul Currency 8uslness Actlvlty' ls extremely broud und
should exclude nonflnunclul uctlvlty to uvold lmoslng unnecessury regulutlon uon those
comunles wlshlng to utlllze the unlque elements of the dlgltul currency rotocols. 1here
ure muny flrms ln thls emerglng ecosystem thut wlll not seek to lnterfuce wlth trudltlonul
flnunclul servlces flrms und therefore do not ose slmllur rlsks. NYLlS should conslder
elther nurrowlng the deflnltlon or uddlng uddltlonul exemtlons for those buslnesses whlch
do not ose undue rlsks und do not rovlde hosted storuge or exchunge servlces. lor
exumle, the NYLlS should exclude softwure thut ullows customers to munuge thelr own
dlgltul currency. NYLlS should look to guldunce, such us thut enucted by llnCLN, whlch
urorlutely clusslfles the urtles, whlch constltute the greutest rlsks, lncludlng
"udmlnlstrutors' und "exchungers' whlch huve u dlrect correlutlon wlth the exchunge of
flut currency.
5

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1hls sectlon rohlblts llcensed dlgltul currency buslnesses from conductlng uny
buslness uctlvlty through unllcensed ugents. 1hls ls dlfferent from the rules thut uly to
other llcensed money trunsmltters. 1hese rules should be ulled conslstently to dlgltul
currency flrms wlth these Llcensees mulntulnlng full resonslblllty for thelr ugents' uctlons
slmllur to trudltlonul money trunsmltters. lt ls osslble thut uddltlonul clurlflcutlon ls needed
us to the scoe und lntent of thls rohlbltlon us well.

Q#;/0'1 399<X V @((-0;./0'1

1he Proosed Rule outllnes some rovlslons uround Llcensee ullcutlons thut ure
more burdensome thun requlrements for trudltlonul money trunsmltters. 1he Proosed Rule
requlres flngerrlntlng und hotogruhs of ull emloyees, whlch ls unllke money trunsmltter
rules, whlch only requlre slmllur lnformutlon for offlcers und rlnclul shureholders. ln
uddltlon, the requlrement for coles of ull wrltten ollcles und rocedures ln connectlon
wlth the lnltlul ullcutlon should be llmlted to muterlul ollcles or those reluted to u seclflc
ureu. ve belleve the ullcutlon rocess for dlgltul currency flrms should mlrror thut of
other money trunsmltters.

399<Y V @;/0'1) 'E /7# Q,(#&01/#1*#1/

1he Proosed Rule grunts conslderuble dlscretlon to the Suerlntendent's offlce wlth
resect to llcenslng, bondlng und cultul requlrements. ve belleve thut thls dlscretlon could
rovlde for un lnconslstent regulutory reglme, burdens for dlgltul currency flrms over und
ubove those of other money trunsmltters und un uncleur understundlng of the
requlrements. ln some ureus, such us cultul requlrements, outllnlng mlnlmum und
muxlmum requlrements would be helful to revent regulutory urbltruge und u otentlul
negutlve lmuct on buslnesses und cometltlon ln the murketluce. Also, lt would be helful
to huve some crlterlu to be uble to ueul declslons und to be uble to seek u revlew ufter u
certuln tlme erlod to uvold undue restrlctlons thut muy be luced on flrms by uctlons of the
Suerlntendent.

Q#;/0'1 399<Z V 6.(0/.- "#L,0&#?#1/)

1he Proosed Rule grunts the NYLlS u lot of dlscretlon to come u wlth mlnlmum
cultul requlrements for flrms wlthout rovldlng u llmlt or other cleur guldellnes. 1he
guldellnes ln thls sectlon could negutlvely lmuct dlgltul currency flrms' cultul und struteglc
lunnlng und the ublllty to bulld und grow u buslness though relnvestments und roer
ullocutlon of resources. 1he NYLlS should further clurlfy the methodology on how cultul
requlrements ure estubllshed. Under the Proosed Rule, cultul ls bused on u vurlety of
fuctors lncludlng buslness rojectlons, llquldlty und the comosltlon of u flrm's ussets und
llubllltles. 1hls tye of bulunce sheet munugement und rojectlon of volumes ls dlfflcult for
6
sturt u flrms ln u qulckly evolvlng murketluce. At best, dlgltul currency flrms could rovlde
vurlous cuse scenurlos to determlne rojectlons und cultul needs. 8used on thls, we feel the
Proosed Rule should rovlde for mlnlmum udequute cultul to ensure sufety und
soundness of flrms whlle ulso ullowlng buslnesses (eseclully sturt u und smuller
entrereneurlul entltles) to grow. 1hls ls lmortunt for un lndustry thut oerutes on u full
reserve model und ls unllke bunks, whlch cun leveruge ussets. vhlle determlnlng mlnlmum
cultul levels ls urorlute, we belleve there should be guldunce thut lncludes otentlul
celllngs for cultul requlrements thut muy be requlred by the NYLlS.

1hls sectlon of the Proosed Rule ulso seems to regulute how u llcensed entlty
ullocutes retulned eurnlngs und roflts und stutes thut dlgltul currency flrms muy only lnvest
retulned eurnlngs ln hlghgrude ermlsslble lnvestments (whlch do not lnclude 8ltcoln). llrst,
we belleve thut dlgltul currency flrms should be ullowed to hold 8ltcoln us u ermlsslble
lnvestment. Second, we feel thut flrms should be ullowed to declde how to lnvest thelr own
roflts. 1he NYLlS should rovlde clurlflcutlon on the restrlctlons on lnvestments of
retulned eurnlngs und whether thls ulles to eurnlngs ussocluted wlth net mlnlmum cultul
requlrements or ull of u flrm's retulned eurnlngs.

Q#;/0'1 399<[ V 6,)/'*D .1* %&'/#;/0'1 'E 6,)/'?#& @))#/)

ve belleve lt ls vltul thut dlgltul currency flrms rotect und secure dlgltul ussets us u
custodlun of customer funds. Llgltul currency comunles should fully reserve ugulnst
customer funds und no uctlon should be tuken to encumber or chunge control over those
funds.

1hls sectlon requlres thut euch Llcensee mulntuln u bond or trust uccount ln Unlted
Stutes dollurs for the beneflt of lts customers ln such form und umount us ls uccetuble to
the Suerlntendent for the rotectlon of the Llcensee's customers. Slmllur to dlscusslon on
cultul requlrements, we belleve there should be more clurlflcutlon on how mlnlmum levels
ure determlned und whut otentlul muxlmum bonds muy be requlred. 8ondlng
requlrements for dlgltul currency flrms should be slmllur (lf not the sume) us other money
trunsmltters.

1he sectlon seems to be restrlctlve us to how customer ussets muy be held by
Llcensees und could unlntentlonully revent Llcensees from trunsferrlng ussets or tuklng
uctlons on behulf of customers through the normul course of buslness. As long us there ls
no chunge of control, these tyes of udmlnlstrutlve trunsfers should be ermltted.

Q#;/0'1 399<\9 V I./#&0.- 67.1+#) /' F,)01#))

1hls sectlon of the Proosed Rule requlres both notlce und rlor wrltten urovul for
"uny lun or roosul to lntroduce or offer u new roduct, servlce, or uctlvlty, or to muke u
muterlul chunge to un exlstlng roduct, servlce, or uctlvlty, lnvolvlng New York or New York
resldents.' ve belleve thls could negutlvely lmuct buslness declslons und the ublllty to
7
qulckly brlng new roducts und servlces to the murket for consumers. lt ls uncleur how long
lt would tuke the NYLlS to uct on u notlce of u muterlul chunge. Also, lt would seem thut thls
rule would creute u sllery sloe of the NYLlS lnfluenclng the cometltlve lundscue und
regulutlng seclflc roducts outslde the trudltlonul rulemuklng rocesses. lt would seem
more urorlute for the NYLlS to utlllze lts suervlsory und enforcement owers to
oversee thls murketluce und ensure sufety und soundness und consumer rotectlon ln thut
munner. ve suggest thut thls rovlslon be ellmlnuted or thut the NYLlS conslder huvlng u
notlce rovlslon ln whlch ull "muterlul' buslness chunges ure rovlded to the NYLlS ln u
tlmely munner followlng lmlementutlon. 1he NYLlS should ulso rovlde uddltlonul clurlty
on whut ls consldered u "muterlul chunge' und the crlterlu used to determlne thls deflnltlon
to uvold confuslon ln the murketluce und the reortlng burdens on Llcensees.

Q#;/0'1 399<\\ V 67.1+# 'E 6'1/&'-] I#&+#&) .1* @;L,0)0/0'1)

1hls sectlon requlres rlor wrltten urovul for uny merger und ucqulsltlon, whlch ls
not currently requlred under New York money trunsmltter regulutlons. ve belleve thut
these regulutlons should be ulled conslstently by the NYLlS.

ve ulso belleve the deflnltlon of "control' should be conslstent wlth New York
money trunsmltter stutute. Under the Proosed Rule, "control' would be resumed lf u
Person dlrectly or lndlrectly controls or holds the ower to vote ten ercent of u comuny's
votlng stock. 1hls contrusts wlth the New York money trunsmltter stutute, whlch stutes thut
control exlsts for z holders. 1here ure slgnlflcunt negutlve lmllcutlons for venture cultul
flrms und lnvestors us well us the ublllty to effectuute otentlul buslness trunsuctlons lf
control wus deflned ut the lower threshold. As u result, we belleve the Proosed Rule should
be revlsed to be conslstent wlth the levels for other money trunsmltters.

Q#;/0'1 399<\3 V F''T) .1* "#;'&*)

1hls sectlon outllnes vurlous books und records requlrements for dlgltul currency
flrms. 1he llst of requlrements und the length of tlme such records should be mulntulned
(!"#"$ c yeurs) seems to be burdensome und lnconslstent wlth stundurd schedules of record
retentlon bused on relevunt luws. lor exumle, the 8unk Secrecy Act requlres u yeur
retentlon for most documents. ln uddltlon to the retentlon length, more clurlty ls needed on
the uctuul records thut need to be retulned. Some of the records llsted muy huve llttle vulue
to the NYLlS.

1hls sectlon ulso rovldes NYLlS wlth the ublllty to exumlne the books und records
of Llcensees und thelr Afflllutes. lt would seem thut thls ls un overreuch of the NYLlS
uuthorlty, eseclully ln relutlon to uffllluted comunles thut muy huve un unreluted buslness
or muy not oerute ln New York.



8
Q#;/0'1 399<\4 V S^.?01./0'1)

Slmllur to the books und records requlrements of the Proosed Rule, thls sectlon
grunts NYLlS the uuthorlty to exumlne uffllluted comunles for the urose of determlnlng
the flnunclul condltlon of the Llcensee. 1here should some urumeters on the uuthorlty
glven to the NYLlS, such us llmltlng thls overslght uuthorlty to only extreme lnstunces when
u revlew of un Afflllute muy be necessury or urorlute.

Q#;/0'1 399<\X V "#('&/) .1* P01.1;0.- O0);-'),&#)

ve belleve the quurterly und unnuul flnunclul reortlng requlrements (und reluted
uttestutlons) ure excesslve und lnconslstent wlth requlrements for other money
trunsmltters. Seclflcully, the Proosed Rule lncludes the need for Llcensees to rovlde un
uttestutlon ln conjunctlon wlth the unnuul flnunclul stutement us to the comllunce wlth ull
luws, rules und regulutlons ullcuble to lt, und munugement's concluslon us to whether the
Llcensee hus comlled wlth the sume, whlch ls not requlred of money trunsmltters or other
flnunclul servlces flrms reortlng to the NYLlS. ve belleve thut thls sectlon should be
removed. ve ulso belleve thut thut some of the lnformutlon requlred to be rovlded wlth
quurterly flnunclul stutements, such us rojectlons und struteglc luns, ure beyond whut
other money trunsmltters rovlde und seem unnecessury ln llght of other requlrements
under the rule to rovlde the NYLlS wlth lnformutlon on muterlul chunges.

Q#;/0'1 399<\_ V @1/0GI'1#D J.,1*#&01+

ve belleve thut federul luws, seclflcully the 8unk Secrecy Act und llnCLN
requlrements for certuln vlrtuul currency flrms, ure un urorlute, effectlve solutlon for
rotectlng ugulnst money luunderlng und flnunclul crlmes rlsks. 1he Proosed Rule outllnes
severul AML requlrements thut ure lnconslstent wlth llnCLN regulutlons undjor other stute
money trunsmltter regulutlons.

llrst, the Proosed Rule requlres suslclous uctlvlty reorts ("SAR') to be reorted
dlrectly to the NYLlS. Unllke llnCLN, whlch ullows thlrty duys to reort thls uctlvlty, the
Proosed Rule requlres lmmedlute notlce. 1here ulso does not ueur to be dollur
thresholds or sufe hurbor rotectlons on these SARs (unllke whut ls requlred under federul
luw). ve would llke clurlflcutlon on how thls lnformutlon would be lnvestlguted und why lt
needs to be reorted dlrectly to the NYLlS. lf New York lnslsts on huvlng seclflc reortlng
requlrements, ut the very mlnlmum they should clurlfy thut the requlrements only uly to
trunsuctlons lnvolvlng u sender or recllent from New York und extend reortlng deudllnes
to ullgn wlth equlvulent federul luws.

Second, the Proosed Rule requlres reorts of ull trunsuctlons of sc,cccc or ubove
wlthln z hours to the NYLlS. 1hls ls not requlred under federul rules, nor ls lt ullcuble to
other noncush trunsuctlons ut these levels. 1hls tye of reortlng would necessltute
slgnlflcunt resources. lt muy not even be osslble to rovlde the NYLlS wlth these
9
trunsuctlons ln thut tlme wlndow. ve would request thut the NYLlS conslder removlng thls
requlrement undjor rovldlng further clurlflcutlon regurdlng the otentlul use of thls dutu.

1hlrd, the recordkeelng requlrements reluted ull dlgltul currency trunsuctlons ure
too burdensome. Collectlng hyslcul uddresses und verlfylng ldentltles on both sldes of the
trunsuctlons ls lmructlcul (lf not lmosslble) und goes wuy beyond funds trunsfer
recordkeelng und truvel rule requlrements under federul luw. Requlrlng thls lnformutlon ls
ulso contrury to the oen source rotocol und decentrullzed nuture of dlgltul currency und
rulses lssues relutlng to consumer's flnunclul rlght to rlvucy. 1hls urt of the Proosed Rule
ls lnconslstent wlth other sectlons, whlch lndlcute thut only trunsuctlons over s,ccc requlre
certuln recordkeelng (versus u requlrement for ull trunsuctlons).

lourth, thls sectlon rovldes thut no Llcensee wlll knowlngly ullow the trunsfer or
trunsmlsslon of vlrtuul Currency when the uctlon wlll obfuscute the ldentlty of un lndlvlduul
or counterurty. 1hls lssue relutes to the flnunclul rlght to rlvucy und unonymlty thut dlgltul
currency rovldes. 1hls rlvucy ullows consumers to uvold dutu leukuge und rotect
themselves from ldentlty theft. Cf course, bud uctors often uttemt to obfuscute ldentltles
to conduct crlmlnul uctlvlty. ln those cuses, lt ls lncumbent uon dlgltul currency flrms to rely
uon AML ollcles und rocedures to ldentlfy und reort thls uctlvlty. Eowever, legltlmute
customers should not be enullzed for trylng to rotect thelr ldentltles. ve belleve thut the
NYLlS should muke lt cleur thut only "unluwful' uttemts to obfuscute ldentltles ure
rohlblted.

llfth, thls sectlon requlres enhunced due dlllgence for uccounts lnvolvlng forelgn
entltles, whlch lncludes controls to ussess the rlsks of these urtles, the nuture of thelr
buslness (lf ullcuble) und urose of the uctlvlty. vhlle lt ls urorlute for Llcensees to
erform lYC rocedures und rlsk ussess new customers, thls requlrement seems overly
rescrltlve und not ullgned wlth requlrements for regulur money trunsmltters. lt seems thut
thls tye of enhunced dlllgence should be conducted when necessury bused on customer
roflles und the rlsk osed to the flrm.

Q#;/0'1 399<\Y V 6DR#& Q#;,&0/D %&'+&.?

ve belleve cyber securlty rotectlons ure urorlute glven thut muny dlgltul
currency flrms ure custodluns of customer ussets und thut these ussets could be subject to
theft or other losses. Eowever, we belleve securlty rotocols should be ulled conslstently
to ull money trunsmltters. 1hese rules should be rlskbused und ensure thut lurger flrms huve
more comrehenslve rogrums whlle smuller flrms huve enough controls to rotect ugulnst
rlsks us thelr buslness grows. As currently drufted, these rogrums could slgnlflcuntly reduce
cometltlon und lnnovutlon ln thls nuscent murket.

1he NYLlS should conslder more rlncllesbused regulutlons ln thls sectlon. lor
exumle, some of the requlrements, such us un lndeendent source code revlew und
mundutory enetrutlon testlng, ure overly rescrltlve und dlsroortlonute comured to
10
urouch tuken to certuln other flnunclul lnstltutlons. 1hese rlnclles could lnclude the
need to () uolnt u Chlef lnformutlon Securlty Cfflcer, (z) conduct u documented rlsk
ussessment und () develo u ollcy und system of controls bused on the rlsk ussessment.
lrom here, dlgltul currency flrms would be glven dlscretlon to comly wlth the slrlt of the
luw, whlch ls to udequutely rotect ugulnst cyber securlty rlsks. lf the NYLlS chooses to
ursue u more rescrltlve urouch, we would recommend uddltlonul unulysls on the tyes
of controls und uudlts thut would be most effectlve ln thls suce.

Also, the ten yeur recordkeelng requlrement under thls sectlon ls excesslve und
would robubly not rovlde for retentlon of muterlul lnformutlon for thls length of tlme. ve
recommend thut the NYLlS conslder reduclng thls tlme erlod to be ullgned wlth other luws
relutlng to flnunclul servlces.

Q#;/0'1 399<\Z V @*>#&/0)01+ .1* I.&T#/01+

1he requlrements for murketlng dlsclosures und recordkeelng requlrements seem
excesslve und lmructlcul. As currently drufted, the Proosed Rule would requlre flrms to
mulntuln u vust mujorlty of muterluls und work roduct for un extended erlod. ve belleve
the NYLlS should llmlt the retentlon requlrement to muterlul dlsclosures or those thut thut
were uctuully dlsclosed to New York customers ln u wldesreud munner. ln uddltlon, the
requlrement to llst u legend ln ull muterluls thut the Llcensee ls uuthorlzed ln New York could
be excesslve. ve belleve thut lt muy be more urorlute to llst thls lnformutlon on u
cororute webslte or somewhere else ln u cleur und conslcuous munner ruther thut ln every
lndlvlduul murketlng dlsclosure.

Q#;/0'1 399<\[ V 6'1),?#& %&'/#;/0'1

ve ugree wlth the lntent to rovlde consumers wlth roer educutlon ubout how
dlgltul currency works und the ussocluted rlsks. 1hls sectlon outllnes mlnlmum lnltlul
dlsclosures of rlsks und generul dlsclosures of customer rlghts, termsjcondltlons, llubllltles
und recelt lnformutlon thut need to be rovlded to consumers ut vurlous stuges of
trunsuctlons. ve feel thut muny of these obllgutlons under the Proosed Rule ure too
broud, vugue, dullcutlve und unnecessury. ve belleve thut the NYLlS should curefully
conslder the tlmlng und content of dlsclosures und determlne how effectlve they muy be for
rotectlng consumers. As currently constructed, these dlsclosures would result ln
unnecessury costs for comllunce und could negutlvely lmuct the efflclency of dlgltul
currency uyment trunsuctlons. lt ls not cleur thut the consumer rotectlon rlsks beur the
need for these costs und burdens. ln cuses of consumer dlsclosures consldered under
federul luw, regulutors huve erformed detulled unulysls of the utlllty of the dlsclosures
roosed. ve would encouruge the NYLlS to conduct u slmllur unulysls for the Proosed
Rule.

More seclflcully, we belleve the NYLlS should clurlfy or reduce requlrements for
Llcensees to dlsclose "ull muterlul rlsks ussocluted wlth lts roducts, servlces und uctlvltles
11
und vlrtuul Currency generully'. ve don't belleve thut consumers would beneflt from such
un extenslve luundry llst of rlsk dlsclosures. ve belleve the NYLlS should elther rovlde u
shorter llst of model dlsclosures for dlgltul currency flrms or tuke u urouch where the
Llcensee ls glven dlscretlon to tullor consumer dlsclosures. Slmllurly, we do not feel thut the
requlrements for Llcensees to rovlde dlsclosures uround otentlul llublllty to customers
under federul or stute luws und regulutlons ure ructlcul or necessury. 1hls requlrement
would trlgger u broud dlsclosure. ve would usk thut the NYLlS rovlde further clurlflcutlon
on whut would be requlred or ellmlnute thls rovlslon.

1he Proosed Rule requlres Llcensees to rovlde customers wlth ull terms und
condltlons ussocluted wlth u trunsuctlon for euch trunsuctlon. ve belleve thls would be
unduly burdensome. Customers should be glven full terms und condltlons rlor to
estubllshlng u relutlonshl wlth u Llcensee und should ucknowledge these condltlons. lt ls
not necessury to dullcute thls rocess for every trunsuctlon. lt rovldes llttle beneflt to the
consumer und negutlvely lmucts thelr ublllty to conduct u trunsuctlon. Customers should
be rovlded detulls of trunsuctlons (rlclng, etc.) uon comletlon of the trunsuctlon. And,
uny muterlul chunges ln the orlglnul terms und condltlons, or uny trunsuctlon thut does not
full wlthln those urumeters, should requlre uddltlonul dlsclosures be rovlded to customers
rlor to the trunsuctlon.

Q#;/0'1 399<39 V 6'?(-.01/)

ve suort roerly hundllng consumer comlulnts ln u fulr und tlmely munner.
Eowever, the Proosed Rule requlres Llcensees to rovlde the NYLlS wlth chunges to lts
comlulnt ollcles wlthln seven duys. 1hls seems overly burdensome und lll deflned. ve feel
thut only "muterlul' chunges ln these ollcles should be reorted to the NYLlS und thut the
NYLlS should rovlde more clurlty on the tyes of chunges thut should be reorted. 1he
NYLlS should ulso rovlde more clurlty on requlrements to muke certuln lnformutlon on
comlulnt reortlng uvulluble on u flrm's webslte. 1hls sectlon ulso glves the
Suerlntendent's offlce wlde dlscretlon over requlrements for comlulnts, whlch could leud
to uddltlonul uncertulnty on crlterlu or uneven ullcutlon of the Proosed Rule.


6'1;-,)0'1

1hunk you uguln for thls oortunlty to rovlde comments to the Proosed Rule. 1hls
ls u crltlcul moment for the dlgltul currency lndustry. Severul stute, federul und lnternutlonul
regulutory bodles ure currently revlewlng whut regulutlon ls needed for dlgltul currency
flrms. 1hese regulutory bodles ure closely wutchlng the uctlons of the NYLlS ln relutlon to
thls Proosed Rule. ve encouruge the NYLlS to coordlnute wlth these grous to develo u
conslstent und coordlnuted urouch to regulutlon. ln urtlculur, we belleve the NYLlS
should be worklng closely wlth the Conference of Stute 8unk Suervlsors ("CS8S')
Lmerglng Puyments 1usk lorce to develo unlform rules thut not only uly to dlgltul
currency flrms, but ull money trunsmltters. lf New York develos rules thut vury wldely from
12
other stutes lt would only serve to comllcute u stute llcense reglme thut ls ulreudy
lnconslstent, onerous und serves us u burrler to entry for muny flrms. 1he end result could
leud to flrms exltlng the New York murket.

ln uddltlon to our substuntlve comments relutlng to ureus to be reconsldered under
the Proosed Rule, we belleve further unulysls of the beneflts und rlsks ussocluted wlth thls
roosul ls wurrunted. Any flnul rules thut ure lmlemented should lnclude un udequute
runwuy for lmlementutlon to ullow flrms to develo roer ollcles und rocedures for
comllunce und ensure there ure no unlntended consequences ussocluted wlth the
roosuls.

ve look forwurd to colluborutlng further wlth the NYLlS on rules to creute u
regulutory reglme thut udequutely uddresses rlsks whlle ulso romotlng buslness lnnovutlon.
ve would be huy to dlscuss uny of the ubove comments wlth the NYLlS ln more detull.

Slncerely,




'ohn A. 8ecclu
Cenerul Counsel und Chlef Comllunce Cfflcer