New Regulatory Standards for Crypto in New York
In a significant move, the New York Department of Financial Services (NYDFS) announced a set of standards for the listing and delisting of digital currencies on Nov. 15, 2023. Affecting Bitlicensees and limited-purpose trust companies, the changes propose regulations for business model considerations of virtual currency entities (VCEs) including coin-listing and coin-delisting policies, updates on risk assessment parameters, requirements for advance notifications and revised definitions in the sector.
Impact on Coin-Listing Policies in VCEs
With the contemporary regulations, VCEs bearing antecedent approvals for coin-listing policies will have to seek NYDFS confirmation for both their coin-listing and coin-delisting policies before they can self-certify any coins. Approval of both policies allows VCEs to self-certify coins exclusively in the interest of New York-based activities. However, without NYDFS-approved listing policies, VCEs can only list coins on the NYDFS Greenlist unless they get specific NYDFS approvals.
Stipulations for Coin Listing Governance
The new regulations mandate that the board of directors or equivalent governing authority of a VCE stay actively involved in the oversight of coin listings. This expands to include annual approvals of the coin-listing policy, decision-making related to new coin listings, and ensuring independence from those proposing coin listings or delistings.
Risk Assessment Necessities for Coin Listing
The NYDFS highlighted several specific risks VCEs must assess in response to requests for greater clarity of risk assessment expectations. VCEs must consider technical design and technology, operational, cybersecurity, market and liquidity, illicit finance, legal, reputational, and regulatory risks.
Boundaries for VCEs in Self-Certifying Coins
The new guidelines have put tighter controls for VCEs self-certifying coins. Coins used to circumvent laws or conceal identities, non-Greenlist stablecoins, exchange coins, and coins with protocols raising concerns about decentralization, are outright ineligible for self-certification.
Robust Coin Monitoring Required for VCEs
As per the new guidelines, VCEs are required to have solid monitoring policies for self-certified coins. The guidelines have set the expectation for VCEs for banking secrecy act and anti-money laundering and sanctions-related controls.
New Guidance on Coin Delisting
The new guidelines have elucidated on the NYDFS’s expectations concerning coin delistings by VCEs. Coin-delisting policies have to reflect the VCE’s business model, operations, customer base, operational geographies, service providers, and the characteristics of the coins.
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Frequently asked Questions
1. What is virtual currency and how is it defined in New York?
Virtual currency refers to digital representations of value that can be bought, sold, or exchanged, and are used as a medium of exchange. In New York, virtual currency is defined as “any type of digital unit that is used as a medium of exchange or a form of digitally stored value.”
2. Are virtual currency businesses regulated in New York?
Yes, virtual currency businesses are regulated in New York. The New York State Department of Financial Services (NYDFS) has implemented a regulatory framework known as the BitLicense, which requires virtual currency businesses to obtain a license to operate in the state.
3. What are the requirements for obtaining a BitLicense?
To obtain a BitLicense in New York, virtual currency businesses must meet various requirements, including submitting an application to the NYDFS, demonstrating compliance with anti-money laundering (AML) and anti-fraud measures, having a cybersecurity program in place, and maintaining records of transactions.
4. Are there any exemptions to the BitLicense requirements?
Yes, certain entities are exempt from the BitLicense requirements. This includes merchants and consumers who utilize virtual currency solely for the purchase or sale of goods or services, and those involved in software development related to virtual currency.
5. How does New York protect consumers investing in virtual currency?
New York has implemented consumer protection measures to safeguard individuals investing in virtual currency. Licensed virtual currency businesses are required to maintain policies and procedures to address customer complaints, provide clear disclosures about the risks associated with virtual currency, and maintain sufficient financial resources to protect customer assets.
6. What are the consequences of operating a virtual currency business without a BitLicense in New York?
Operating a virtual currency business without a BitLicense in New York is illegal and can result in severe penalties. Violators may face civil and criminal charges, including fines, imprisonment, and the forced closure of their business.
7. Are there any ongoing developments or updates regarding virtual currency regulations in New York?
Yes, virtual currency regulations in New York are subject to ongoing developments and updates. The NYDFS regularly reviews its regulations to adapt to changing technology and market trends. It is crucial for virtual currency businesses and investors to stay informed about any new guidance or amendments issued by the NYDFS.