It seems the New York regulators are back and after crypto yet again. If you recall, a few years ago NY came out with the BitLicense, which was the first set of crypto regulations in the state of New York, which ended up driving away a lot of native NY crypto companies out of the state as the regs were too harsh.
On Thursday they issued new updated digital asset guidance to state-regulated banks laying out what information financial institutions must submit before getting approval to engage in virtual currency-related activities. The NYDFS released a statement outlining its plans for the regulations and rules. The announcement was made after the NYDFS received several complaints from consumers regarding the lack of regulation surrounding digital assets after the FTX collapse and arrest of Sam Bankman-Fried in the Bahamas, where he is facing extradition to the United States for prosecution of fraud, among other charges.
The NYDFS has outlined three key areas where they plan to focus their attention: consumer protection, anti-money laundering, and cybersecurity. They also stated that they would be working closely with other agencies such as the U.S. Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Federal Bureau of Investigation (FBI).
According to the NYDFS, Cryptocurrencies are not money. Money is defined as a unit of account, store of value, and means of payment. Cryptocurrencies are simply units of account. There are many different cryptocurrencies, each with their own unique characteristics. Bitcoin is a type of cryptocurrency. They also said that cryptocurrencies are not legal tender. The U.S. government does not regulate cryptocurrencies. In fact, the federal government specifically prohibits its agencies from regulating them. That said, some states have passed laws regarding cryptocurrencies. If you live in one of those states, check with your local authorities about whether they have any regulations regarding cryptocurrencies.
Banks may not offer cryptocurrency services. Banks are subject to regulation under the Bank Holding Company Act of 1956, which generally prohibits nonbanking companies from engaging in banking activities. However, the Federal Deposit Insurance Corporation (FDIC) has interpreted this law to allow banks to provide certain deposit products and services to individuals. As long as these products and services do not involve accepting deposits or providing loans, then they are considered safe and secure.
NY regulators said that cryptocurrencies are volatile, because cryptocurrencies are decentralized, no single entity controls them. This makes them prone to price volatility. Prices can rise rapidly and fall just as fast. Cryptocurrencies are risky investments. Investing in cryptocurrencies carries risk. You could lose money if the market for cryptocurrencies declines. Additionally, if you trade cryptocurrencies, you could face high transaction fees and potential security risks.
As part of the new business plan banks are expected to submit to NYDFS, banks should detail a comprehensive risk assessment for the service they wish to engage in, as well as expected costs of the project and what relevant consumer protection policies will apply. The guidance is effective immediately, NYDFS said.