New York Department of Financial Services Requires Preparedness Plans for Virtual Currency Businesses Due to Coronavirus

The New York Department of Financial Services has issued a requirement that all institutions engaged in virtual currency businesses to have a preparedness plan due to the impact of the Coronavirus or COVID-19.

Virtual currency businesses regulated in the state of New York are not alone as other financial services sectors have received a similar demand by the regulator.

To quote NYDFS:

“COVID-19 has already had adverse economic effects domestically and globally.  It is critical that each regulated entity establish plans to address how it will manage the effects of the outbreak and assess disruptions and other risks to its services and operations.

To that end, DFS requires that each regulated institution submit a response to DFS describing the institution’s plan of preparedness to manage the risk of disruption to its services and operations.  Responses are to be provided to DFS as soon as possible and in no event later than thirty (30) days from the date of this letter.  Please submit your responses to the following designated email address:

An institution’s preparedness plan should be sufficiently flexible to effectively address a range of possible effects that could result from an outbreak of COVID-19, and reflect the institution’s size, complexity and activities.  The institution’s plan, at a minimum, should include the following:

    • Preventative measures tailored to the institution’s specific profile and operations to mitigate the risk of operational disruption, which should include identifying the impact on customers, and counterparts;
      A documented strategy addressing the impact of the outbreak in stages, so that the entity’s efforts can be appropriately scaled, consistent with the effects of a particular stage of the outbreak;
    • Assessment of all facilities, systems, policies and procedures necessary to continue critical operations and services if members of the staff are unavailable for longer periods or are working off-site, including the effectiveness and security of remote access;
    • An assessment of potential increased risk of cyber-attacks and fraud due to an outbreak;
    • Employee protection strategies, critical to sustaining an adequate workforce during the outbreak, including employee awareness and steps that employees can take to reduce the likelihood of contracting COVID-19;[1]
    • Assessment of the preparedness of critical third-party service providers and suppliers;
    • Development of a communication plan to effectively communicate with customers, counterparties and the public, and to deliver important news and instructions to employees, along with establishing forums for questions to be asked and addressed;
    • Testing the plan to ensure its policies, processes and procedures are effective; and
    • Governance and oversight of the plan, including identifying the critical members of a response team, to ensure ongoing review and updates to the plan, including the tracking of relevant information from government sources and the institution’s own monitoring program.

In addition, from a financial perspective, regulated entities may be impacted by COVID-19 in a variety of ways.  For example, they may be exposed, as a result of the virus’s impact on consumers, counterparties, and vendors, to declining revenues, stock market declines and interest rate changes, supply chain and service disruptions, and decreases in the value of assets and investments.  It is critical that your risk management programs include a plan to assess and monitor the financial risk that may arise from COVID-19.  Such a plan, at a minimum, should include the following assessments:

    • Assessment of the valuation of assets and investments that may be, or have been, impacted by COVID-19;
    • Assessment of the overall impact of COVID-19 on the earnings, profits, capital, and liquidity of your institutions; and
    • Assessment of reasonable and prudent steps to assist those adversely impacted by COVID-19.  See DFS Guidance to New York State Regulated Banks, Credit Unions and Licensed Lenders Regarding Support for Businesses Impacted by the Novel Coronavirus.”

NYFDS added that it was concerned with a heightened risk of hacking as bad actors seek to advantage of the Coronavirus pandemic.

The regulator said there may emerge a need for “special arrangements” to move virtual currency from cold to hot wallets.

The complete release is available here.

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