New York State Department of Financial Services Offers Advice on Virtual Currency, Suggests Coin Listing Recommendations

The New York State Department of Financial Services (NYDFS) has released new guidance for the digital asset industry, expanding on its existing Bit Licence rules. The NYDFS aims to prioritize regulations for virtual currency policy in order to keep up with the rapid innovation in digital assets.

Superintendent Adrienne A. Harris expressed her goal of strengthening regulations and supervision for the industry. She highlighted the department’s efforts to build a team of over 60 professionals, enhance consumer and industry safeguards, and collaborate with policymakers globally.

The NYDFS has played a significant role in shaping virtual currency policy in the US and around the world. As part of its VOLT Initiative, the guidance introduces a framework for listing and de-listing cryptocurrencies.

Key objectives of the guidance include:

– Raising risk assessment standards for coin-listing policies and imposing stricter requirements for consumer-facing businesses.
– Requiring licensees to develop and submit a coin-delisting policy for approval by the NYDFS.
– Updating the DFS Greenlist, which is a list of approved coins and tokens for licensed businesses to list or custody.

The Greenlist on the DFS website features regulated firms and currently approved cryptocurrencies, including stablecoins, Ethereum, and Bitcoin.

The NYDFS has informed regulated firms of its authority to remove, halt, or curtail any cryptocurrencies from the Greenlist at any time.

In recent years, the NYDFS, under Superintendent Harris, has imposed penalties on several cryptocurrency companies, including Robinhood Crypto and Coinbase, Inc., totaling over $132 million.

Commenting on the guidance, Casey Jennings, counsel in Seward & Kissel’s Financial Services Regulatory Group and Blockchain and Cryptocurrency Group, emphasized that technology often outpaces regulation in the blockchain and fintech sectors. He acknowledged that state regulators have been more proactive than federal regulators in addressing these issues.

Jennings noted that while the guidance vaguely mentions that some coins may be delisted due to pending enforcement or criminal cases, it fails to address the Securities and Exchange Commission (SEC) categorizing certain coins as securities. This inconsistency could lead to confusion and regulatory uncertainties.

Industry participants have until October 20, 2023, to provide feedback on the guidance.

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