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NYDFS Adopts BitLicense Assessment Fees
Practical Law Legal Update w-039-2609 (Approx. 5 pages)
NYDFS Adopts BitLicense Assessment Fees
by Practical Law Finance
| Published on 26 Apr 2023 • USA (National/Federal) |
The New York Department of Financial Services (NYDFS) has adopted a final regulation establishing a framework of annual assessments and fees designed to cover costs of NYDFS supervision and examination of businesses holding NYDFS-issued virtual currency (VC) business activity licenses (BitLicenses).
On April 17, 2023, the New York Department of Financial Services (NYDFS) announced it adopted a final regulation (assessment regulation) establishing how companies holding a NYDFS-issued virtual currency (VC) business activity license (BitLicense) will be assessed for annual costs of NYDFS supervision and examination . Under the assessment regulation, adopted as 23 NYCRR Part 102 under the New York Codes, Rules, and Regulations, individual BitLicense holders will receive bills for each license five times each fiscal year, consisting of:
- Four estimated quarterly assessments in an amount equal to approximately 25% of the VC unit's prior fiscal year's annual amount with:
- the first quarter billing based on the BitLicensee's annual budget; and
- the second through fourth quarter bills adjusted to reflect the best estimate of actual annual expenses during the fiscal year.
- A final assessment, or true-up assessment, based on the VC unit’s actual expenses for the fiscal year with the expectation that the prior adjusted quarterly bills minimize the final bill amount.
Under the assessment regulation, each of the five annual BitLicense bills must be paid within 30 days of the billing date. Any institution that is a BitLicensee for any part of a fiscal quarter is assessed for the full quarter. New York State fiscal year begins April 1 and ends March 31.
According to NYDFS the total annual assessment from each BitLicensee will be based on two components:
- A regulatory component that includes an NYDFS estimate of the cost of examining the BitLicensee, which is equal to the BitLicensee's total operating cost, as defined in the assessment regulation, less the supervisory component noted below, divided by the total number of BitLicensees.
- A supervisory component equal to the sum of the BitLicensee's transaction volume basis assessment and its custody basis assessment, each as defined in the assessment regulation.
According to the assessment regulation, failure by a BitLicensee to pay any assessment will result in additional penalties, interest, and regulatory action as provided for under applicable New York law including the Financial Services Law (FSL) and the State Finance Law. Enforcement actions for nonpayment of assessments could include suspension, revocation, expiration, or termination of a BitLicense.
The assessment regulation also includes a special assessment provision that allow NYDFS to assess and bill affected BitLicensees for certain special assessments within 180 days after the calendar quarter within which the special assessment expense was incurred, with these amounts to be paid within 30 days of the date of billing. Additionally, under the special assessment provisions, NYDFS may determine that assessments resulting from a specific examination are "best allocated" to a specific BitLicensee or group of BitLicensees rather than to all BitLicensees generally, based on factors as determined by NYDFS as specified in the special assessment provision.
According to NYDFS, the assessment regulation puts into effect a provision in the New York State fiscal year 2023 budget to give NYDFS new authority to collect its supervisory and examination costs from licensed VC businesses in a manner similar to other existing NYDFS regulated licensees.
The assessment regulation became effective April 19, 2023.
For additional information on NYDFS BitLicense framework see Practice Note, NYDFS Virtual Currency BitLicense Framework: Overview.