New York’s financial regulator said banks looking to enter the cryptocurrency space need to first seek approval from the regulator.
The New York Department of Financial Services, in a guidance document published Thursday, said it would assess new crypto-related activities proposed by financial institutions based on potential risks they may pose to the banks and consumers, and detailed the process for those entities hoping to get approval to offer crypto products and services.
U.S. banks and foreign banks with branches in New York that are under NYDFS supervision should notify the agency at least 90 days before starting any new or significantly different crypto-related activities, according to the guidance.
Additionally, banks are required to submit information across six categories: present their business plan, explain how they will manage crypto-related enterprisewide risk, provide details on how they will set up their corporate governance structure, how consumers will be protected, as well as spell out their financials and provide legal and regulatory analysis. The guidance also includes a supplemental checklist of documents the banks need to provide.
NYDFS is one of the first state financial regulators to issue such guidance for banks. “DFS’s regulations and guidance together form a supervisory framework that helps to protect consumers and preserve the safety and soundness of companies,” a spokeswoman for the agency said in an email.
NYDFS Superintendent Adrienne Harris said the guidance is needed as the traditional financial institutions continue to innovate and as the crypto market evolves over time.
Ms. Harris also last month said the agency’s application process is designed to review complex companies such as cryptocurrency exchange FTX in a customized manner to make sure they have sound financials and appropriate risk controls in areas such as anti-money laundering and cybersecurity.
New York’s financial regulator, which oversees insurance companies and state-chartered banks, already plays an outsize role nationally in overseeing the financial services sector. Ms. Harris, in an interview with The Wall Street Journal earlier this year, said she is looking to use the state’s role as a financial-services leader to help set the regulatory agenda nationwide, with a particular focus on bringing order to the cryptocurrency industry.
“It is critical that regulators communicate in a timely, transparent manner about the evolution of our regulatory approach,” Ms. Harris said in a statement Thursday. “Today’s guidance is critical to ensuring that consumers’ hard-earned money is protected, that New York regulated banking organizations remain resilient and competitive, and that the expectations are clear for those that wish to submit proposals for virtual currency-related activity.”
The guidance also comes as more details emerge about the collapse of FTX. After the exchange filed for bankruptcy last month, its former chief executive and founder, Sam Bankman-Fried, was arrested Monday in the Bahamas after the U.S. filed criminal charges. Prosecutors and regulators alleged this week that Mr. Bankman-Fried stole billions of dollars from FTX customers in one of the biggest financial frauds in American history. Much of the money, they said, propped up trading firm Alameda Research, also largely owned by Mr. Bankman-Fried.
FTX said the company was seeking a license in New York when it filed for bankruptcy. An NYDFS spokeswoman said last month that the crypto exchange was never approved by the agency to do business in the state.
