New York Department of Financial Services
In his role as New York’s superintendent of financial services, Ben Lawsky has been responsible for regulating all types of financial companies, from insurance firms to check cashers. In the summer of 2013, a new type of company crossed his radar: those handling, and transacting in, the new virtual currency, bitcoin.
Since then, Lawsky and his team have been on a fact-finding mission, issuing subpoenas to bitcoin companies doing business in the state and holding hearings on the currency in January to hear from investors, entrepreneurs and law enforcement officials. I caught up with Lawsky last week to chat about what his biggest bitcoin fears are, how close the state of New York is to issuing bitcoin-specific regulation, and whether regulation should come at the state or federal level.
Re/code: How confident are you that New York State can be the long-term home to bitcoin companies?
Ben Lawsky: Our goal is to make New York as friendly as possible to innovation and to new tech developments like bitcoin and the like, while at the same time keeping in place, or putting in place, enough protections so we know with these new innovations consumers still have protections. That we have guardrails in place to prevent money laundering. And that we make sure that these institutions are financially safe and sound.
We want to be open to the new, new thing and new financial products and new fintech developments as much as possible, but without sacrificing the protections we need for consumers and to protect against money laundering.
These protections you need depend on the particular circumstances and require a lot of hard work. One thing we’re spending a lot of time doing with bitcoin and other virtual currencies is really studying the market. What it is, trying to understand it and the technology the best we can. Also where it’s going and where it will be five years from now.
You have to really understand what you are trying to regulate in order to try to achieve those broad goals I just set. That’s why we had the hearings. We really want to understand the benefits it brings and, at the same time, where the blind spots are.
Do you have a timeline in place to move from educating yourself to actually regulating?
I think we feel more of a sense of urgency now than we did a month ago after the hearings. I always said we wanted to do it sooner than later, and do it in 2014, and try and do all the studying we could and then spend some time getting the regulations right. To do it fast but not rush it.
We feel post-Mt. Gox that there is more urgency and that the sooner we get guidelines in place, the better. I don’t think it’ll be next week or the week after, but we’re trying to expedite things without sacrificing the need to really understand what we’re doing … and really understand the potential unexpected consequences of what we might do.
For example, if we just push everything off-shore, that potentially makes everything worse.
I don’t think about it with a set date, but we’re trying to move as quickly as possible from the study phase to the crafting of the regulations broadly, and then we’ll focus on the nitty gritty details.
What are your biggest concerns right now?
The first challenge is to really understand what you’re regulating. I think we spent a lot of time and we, for regulators, have a pretty good handle on what we’re regulating. I’m well aware we don’t understand it like a computer scientist will understand it. That just makes us more careful because we want to always be aware of what we don’t know. We get that.
The bitcoin we know today is certainly not the end of the line for virtual currencies. It’s very much still in the early phase and it’s going to be developed more and there are going to be platforms built on platforms. The product or products or market we end up dealing with someday may be substantially different or improved. We don’t want to put regulations in place that will straightjacket the adaptation one would want to see.
There’s not that type of regulation in the tech world and you see what innovation happens. In the bank world, there’s a set of very tight regulations that are well intended. The question is, What happens when the largely unregulated tech world collides with the heavily regulated bank world?
The real challenge is to figure out those regulations on the banking side you just have to have or which of the goals you just have to meet. We need to make sure we are not allowing massive money laundering to take place. We need to make sure consumer disclosures are there so consumers know what they’re getting into. We need to examine, or audit, to make sure that when we go inside these institutions, that they are safe and sound and do not disappear like Mt. Gox.
If we do those three things in a way that doesn’t straightjacket innovation, I think we can be in a really interesting situation, and hopefully we’ll get there in New York.
Do you think we’ll see regulation at the federal level or just more guidance?
I don’t know. I can’t say for sure what the federal regulators are going to do. But the signs from everyone so far have been more toward guidance and less hard regulation. It also depends how well the states do. … If there’s a big gap and a big need, ultimately the feds may be pushed to move or not.
Does Barry Silbert and his team at SecondMarket have the go-ahead from you to launch their bitcoin exchange?
I would characterize it as we are in active conversations with that group about their exchange, but it’s not all locked down yet.
Do you own any bitcoin?
I get that a lot. I do not. I did a Reddit AMA (Ask Me Anything), so I’ve been given a fair amount of bitcoin which I have not accepted for obvious reasons.
During the hearings, Fred Wilson told me that “If I were out to dinner with you, I would send you bitcoin while we had dinner. When I do that with people their attitude and views of the power of this technology really changes once they experience how easy it is to get and to use.” I took that to heart and I thought a lot about that. But I’m immersed in the issue deeply so I don’t think I need to buy a bitcoin for us to really delve into it.