New York’s more crypto-friendly iteration of the Department of Financial Services is seeking comment on a new set of guidelines to help licensed New York cryptocurrency dealers select tokens for listing or adoption.
The NYDFS says that, since 2015, it has issued two dozen licenses and charters to cryptocurrency brokers in order to, “ensure that New Yorkers have a well-regulated way to access the virtual currency marketplace and that New York remains at the centre of technological innovation and forward-looking regulation.”
Five years in, the NYDFS says, “there has been exponential and continued growth in the number of coins available in the market…(and) those holding BitLicenses and…trust charters, have asked to list new virtual currencies (‘coins’) in addition to those included in their initial applications to DFS.”
“To enhance efficiency and enable VC licensees to offer and use new coins in a timely fashion, DFS is seeking comments from all interested parties and the general public regarding the following two proposed coin adoption or listing options that DFS wishes to make available to VC licensees.”
The plan is that, “A proposed DFS web-page…will contain a list of all coins that are permitted for the Virtual Currency Business Activities of the VC licensees…”
Licensees will also be allowed to use an independent framework to assess a other coins’ suitability for listing:
“A proposed model framework for a coin-listing or adoption policy that can be tailored to a VC licensee‘s specific business model and risk profile…if approved by DFS, will enable the licensee to self-certify the listing or adoption of new coins in addition to those listed under 1 above, without DFS’s prior approval.”
VC licensees must inform the DFS, “no later than at the time of their next quarterly filing, of all coins to be used or offered in connection with their Virtual Currency Business Activities.”
VC licensee’s can establish their own coin-listing policies, but they must involve, “robust procedures that comprehensively address all steps involved in the review and approval of virtual currencies in connection with the Virtual Currency Business Activities of the licensee.”
“The policy must be tailored to the VC licensee’s specific business model, operations, customers and counterparties, geographies of operations, service providers, and the use, purpose and specific features of the coins being considered. It should also include procedures for notifying DFS of new coin listings.”
A company’s coin listing policy should contemplate the following attributes of a crypto coin project:
I. Governance, including assuring a proper board and related procedures are in place and that, “those involved in the review and decision-making process regarding a particular coin have no conflicts of interest.”
Licensees must also, “keep…records of the application of the company coin-listing policy to each new coin.
II. Risk: “Before adopting or listing any new coin, a VC licensee should conduct and document a full risk assessment of such coin in a way that is entirely free of conflicts of interest.”
Licensees must also determine that, “any new coin is created or issued by a legitimate and reputable entity or entities for lawful and legitimate purposes and not for evading compliance with applicable laws and regulations.”
Licensees must also consider, “Risks associated with any technology or systems…Risks relating to code defects and breaches…as well as cyber security and custody risks” (cryptocurrencies have been frequently stolen or hacked).
Market and legal risks must also be addressed, “including concentration of coin holdings or control by a small number of individuals or entities, price manipulation, and fraud,” as well as, “any pending or potential regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of the new coin.”
A coin’s performance and the project’s maintenance must be monitored.
Licensees must conduct, “Periodic re-evaluation of the coin, including whether material changes have occurred, with a frequency and level of scrutiny tailored to the risk level of the particular coin.”
Licensees must also have controls set up to mitigate risks posed by certain coins and must also have processed in place for de-listing coins as necessary, including the provision of notices to affected customers and counterparts in the case of such de-listing.
The NYDFS says its model framework is, “not exhaustive, and may be updated from time to time in response to new information, evolving markets, and additional experience.”
The framework is also, “not intended to limit the scope or applicability of any law or regulation.”
Comments should be submitted by January 27, 2020 to [email protected]. (Please use “Proposed Coin Listing Policy Framework” in the subject line.)