NYDFS Introduces Stricter Crypto Listing and Delisting Rules

The New York State Department of Financial Services (NYDFS) has revised its guidelines on the listing and delisting of cryptocurrencies. This move aims to bolster investor protection and ensure that virtual currency businesses adhere to heightened regulatory standards.

Since 2015, the NYDFS has been a pivotal regulator in the virtual currency sphere, introducing specific regulations like BitLicenses and trust company charters. The department’s initial guidance on the adoption or listing of virtual currencies was released in 2020.

Replacing its 2020 guidance, the NYDFS’s new directive, effective immediately, introduces more stringent requirements after considering inputs from various stakeholders. The guidelines emphasize heightened consumer protection measures and clearer risk assessment procedures to reduce ambiguities in regulatory processes. Also included are exceptions for advance notifications in specific scenarios of coin delistings and updated definitions for clarity.

Entities involved in virtual currency activities are now required to obtain DFS approval for their coin-listing policies, maintain detailed records, and communicate with DFS regarding self-certified coins. Furthermore, a crucial aspect of the new regulations is the development of a comprehensive coin-delisting policy. Entities must formulate these policies and submit them for review, complying with the revised guidelines by January 31, 2024, while presenting their draft policies by December 8, 2023.

These guidelines are set to influence a range of licensed digital currency businesses in New York. The NYDFS aims to maintain its leadership in regulating the evolving virtual currency market.

The NYDFS’s initiative is part of its broader efforts to protect investors in the cryptocurrency market. Entities like Circle, Gemini, Fidelity, Robinhood, and PayPal must comply with these new regulations, reflecting New York’s commitment to monitoring the cryptocurrency industry closely.

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NYDFS to Assess Supervisory Costs from Licensed Crypto Firms

The New York State Department of Financial Services (NYDFS) has announced that it will be adopting a new regulation that will allow the government agency to assess supervisory costs from licensed crypto firms operating within the state. The supervisory costs collected through this regulation will be used to add top talent to the NYDFS’s virtual currency team. This move by the NYDFS is seen as an attempt to improve its oversight and regulatory capabilities in the rapidly-evolving digital asset industry.

According to the NYDFS, the regulation will allow it to assess the costs associated with the supervision and examination of crypto firms operating in the state with a BitLicense. The Department hopes that these new tools and resources will enable it to better regulate the virtual currency industry in New York, both now and in the future, as innovators continue to create new products and use cases for digital assets.

The new regulation was proposed in December 2022, after which the NYDFS met with key stakeholders and received feedback. The regulator noted that the proposed rule was added in response to the state’s Financial Services Law not including such a provision on the assessment of operating costs.

Since 2015, crypto firms operating in the state of New York have largely been required to apply for a BitLicense. As of February 10th, there were 33 companies involved in crypto and blockchain operating in the state under a virtual currency license, limited purpose trust charter, or money transmitter license. The BitLicense requirement has been a topic of debate, with some claiming that it stifles innovation and economic growth. In April 2022, New York City Mayor Eric Adams suggested that the state scrap the BitLicense regime.

This move by the NYDFS is likely to have significant implications for crypto firms operating in the state. The regulation will provide the NYDFS with additional resources and tools to regulate the industry, but it may also result in increased costs for firms. Nonetheless, the NYDFS believes that the benefits of the regulation will outweigh any potential downsides, and that it will help to ensure that the state remains at the forefront of digital asset innovation.

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Robinhood’s Crypto Unit Slammed With $30M Fine

The digital currency arm of a commission-free brokerage firm, Robinhood Crypto, has been slammed with a fine of $30 million by the New York Department of Financial Services (NYDFS).

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The sanctions came as the regulator discovered that Robinhood Crypto violated a number of extant regulations, including the Bank Secrecy Act (BSA), Anti-Money Laundering (AML) violations, transaction monitoring inadequacies, and failure to make provisions for cybersecurity regulation.

The regulator noted that it discovered the flaws in Robinhood Crypto’s operating models following a supervisory examination and a subsequent enforcement investigation.

 

“As its business grew, Robinhood Crypto failed to invest the proper resources and attention to develop and maintain a culture of compliance—a failure that resulted in significant violations of the Department’s anti-money laundering and cybersecurity regulations,” said Superintendent Harris.

“All virtual currency companies licensed in New York State are subject to the same anti-money laundering, consumer protection, and cybersecurity regulations as traditional financial services companies. DFS will continue to investigate and take action when any licensee violates the law or the Department’s regulations, which are critical to protecting consumers and ensuring the safety and soundness of the institutions.”

 

In the case of Robinhood Crypto, the NYDFS report revealed that its BSA and AML programs were understaffed, thus making it difficult for the firm to meet up with its obligations. Additionally, it was discovered that the company failed to meet the required transition pace from manual transaction monitoring to auto, a situation that largely opened its systems to manipulations that may go undetected.

 

Now is not a time when companies wish to incur liabilities from regulators as the broader digital currency ecosystem has been receiving massive hits from plummeting valuations. While the NYDFS has a reputation for related enforcements in line with its reviewed guidelines, Robinhood Crypto may breathe a sigh of relief as it will look to put its house in order now that the enforcement action is concluded.

 

According to a report from Blockchain.News, Robinhood CEO Vlad Tenev had announced plans in April to lay off 9% of its full-time workforce as the shares of the company’s stock hit a new low.

 

Tenev, in a blog post, said that the lay-offs came after a headcount growth that “led to some duplicate roles and job functions, and more layers and complexity than are optimal,” the report added.

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New NY Gov. taps former Obama official to head state’s financial regulator

Kathy Hochul, the governor of New York who has been in office for only a week since the departure of Andrew Cuomo, has nominated Adrienne Harris to lead the state’s Department of Financial Services.

According to a Tuesday Wall Street Journal report, Hochul tapped Harris to lead the New York Department of Financial Services, or NYDFS, following the resignation of superintendent Linda Lacewell. Harris is currently a senior advisor at the PR firm Brunswick Group, but prior to that was a Special Assistant for Economic Policy to U.S. President Barack Obama and a senior advisor to the Deputy Secretary of the Treasury Department.

Harris has had few public statements on the crypto and blockchain space, but she was part of an Obama-era meeting with leaders in the fintech ecosystem to discuss government support for the sector. According to the Wall Street Journal, she aims “to ensure we have a robust and fair financial system, and an equitable economy” in her possible role at the NYDFS.

Former New York governor Cuomo resigned on Aug. 10 after multiple allegations of sexual harassment, paving the way for Hochul to take office two weeks later. Lacewell, first nominated by Cuomo in 2019, served as the state’s financial regulator for two years and had the full authority to issue Bitlicenses to crypto and blockchain firms seeking to operate in the state. She helped streamline the process for licensing in an effort “to reduce burdens on industry while protecting consumers.”

Related: NYDFS taps former DOJ attorney as deputy virtual currency chief

The prospective NYDPS must be confirmed by the state senate before she takes office.