New York may offer transitional licenses to small virtual-currency firms and startups to let them grow before facing the full burden of new regulation, the state’s top financial watchdog said.

Benjamin Lawsky, New York’s superintendent of financial services, has been developing a BitLicense this year to ensure firms dealing in bitcoins and other digital currencies protect consumers and help thwart money laundering. Since the rules were proposed in July, many comment letters have focused on the expense for fledging companies, he said today in a speech.

“There has to be a way for startups to start up and play by the rules without getting crushed by huge compliance costs,” Lawsky said in prepared remarks to the Money20/20 conference in Las Vegas. “To that point, we are considering creating a special type of ‘Transitional BitLicense.’”

Bitcoins, the most popular virtual currency, have drawn interest from entrepreneurs and investors including venture capitalists looking to popularize it as a low-cost alternative to established payment systems, supplanting credit cards to international wire transfers. Lawsky said when proposing the regulatory regime in July that he wants to protect people and root out wrongdoing without stifling innovation.

Representatives of tech companies, retailers, banks and payment networks gather at the four-day Money20/20 conference. Organizers have predicted it will draw more than 7,000 attendees, including hundreds of chief executive officers.

The transitional license would let certain small businesses and startups operate in a more flexible framework for a set period of time, when they would be subject to tailored examinations, Lawsky said. In weighing applications, his office may consider aspects including the scope of the business, the amount of money handled and risk to consumers, he said.

“We have faced similar issues among the smaller, community banks we regulate,” Lawsky said. “We recognize that if a financial firm has 12 employees -- and nine of them are compliance officers -- that is not a winning business model."

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