NYDFS Adopts New Regulation To Enhance Monitoring Crypto Company

Key Points:

• The NYDFS has issued a new law outlining how cryptocurrency firms would be penalized for expenditures related to their oversight.
• Companies will be required to fulfill stringent capitalization, cybersecurity, and anti-money laundering criteria under the rule.
• The restriction applies only to companies that have a state-issued BitLicense.

The New York Department of Financial Services (NYDFS) has enacted new laws aimed at improving consumer protection and safeguarding the safety and soundness of crypto firms, in a key step toward strengthening control of the expanding crypto sector.

The NYDFS said on April 16 that the supervisory expenses imposed by the new rule would be utilized to hire top expertise for its virtual currency division. The government agency will estimate the expenses of supervising and inspecting crypto companies operating in the state with a BitLicense.

Companies will be expected to adhere to stringent capitalization, cybersecurity, and anti-money laundering rules under the new structure.

To inform the rule, the regulator did an extensive study and spoke with stakeholders prior to its implementation.

NYDFS Superintendent Adrienne Harris stated:

“As the first prudential regulator of virtual currency in the nation, New York has created a framework that sets the highest standards for safety and consumer protection while fostering responsible growth. This regulation provides the department with additional tools to regulate the virtual currency industry.”

The new legislation will only apply to companies that have a DFS-issued Bitlicense, which is a business license provided by the NYDFS that allows businesses to operate in New York. Just 22 firms now possess such a license.

The NYDFS suggested introducing the policy in December 2022 to analyze expenses, following which it would meet with “important stakeholders” and solicit input. According to the regulator, the new regulation was introduced in response to the absence of such a provision on the evaluation of operational expenses in the state’s Financial Services Law.

According to the NYDFS, the rule at the time did not provide a provision for assessment expenses. Before enacting the new rule, the agency said that it conducted a considerable study and spoke with industry stakeholders. Licensees of a limited-purpose trust business or a banking organization will continue to be scrutinized under current legislation.

The New York State Senate stated its desire to strengthen the NYDFS’s oversight of the cryptocurrency industry around a year ago. The idea was to harmonize the regulator’s examination of cryptocurrencies with that of more conventional banks and financial services organizations.

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