The New York financial regulator said that banks seeking to enter the cryptocurrency space must first seek regulatory approval.
The New York Department of Financial Services, in a guidance document released Thursday, said it would evaluate proposed new cryptocurrency-related activities by financial institutions based on potential risks they may pose to banks and consumers, and detailed the process for those entities hoping to get approval to offer crypto products and services.
US banks and foreign banks with branches in New York that are under the supervision of the NYDFS must notify the agency at least 90 days before beginning any new or significantly different cryptocurrency-related activity, according to the guidance.
In addition, banks are required to submit information in six categories: present their business plan, explain how they will manage company-wide risk related to cryptocurrency, provide details on how they will set up their corporate governance structure, how consumers will be protected, as well as such as detailing your finances and providing legal and regulatory analysis. The guide also includes a supplemental checklist of documents banks must provide.
NYDFS is one of the first state financial regulators to issue such guidance to banks. โThe DFS regulations and guidance together form a supervisory framework that helps protect consumers and keep businesses safe and sound,โ an agency spokeswoman said in an email.
NYDFS Superintendent Adrienne Harris said the guidance is necessary as traditional financial institutions continue to innovate and the crypto market evolves over time.
Ms Harris also said last month that the agency's application process is designed to review complex companies like cryptocurrency exchange FTX on a one-to-one basis to ensure they have sound financials and appropriate risk controls in areas such as combating money laundering and cybersecurity.
New York's financial regulator, which oversees insurance companies and state-chartered banks, already plays an important role at the national level in overseeing the financial services industry. Ms. Harris, in an interview with The Wall Street Journal earlier this year, said she seeks to use the state's role as a leader in financial services to help set the regulatory agenda at the national levelwith a particular focus on bringing order to the cryptocurrency industry.
โIt is critical that regulators communicate in a timely and transparent manner about the evolution of our regulatory approach,โ Ms. Harris said in a statement on Thursday. โToday's guidance is critical to ensuring that consumers' hard-earned money is protected, that New York's regulated banking organizations remain resilient and competitive, and that expectations are clear to those who wish to submit proposals for related activities. with virtual currency.
The guide also comes as more details about the FTX crash emerge. After the exchange filed for bankruptcy last month, its former CEO and founder, Sam Bankman-Fried,
he was arrested on monday in the Bahamas after the United States filed criminal charges. Prosecutors and regulators alleged this week that Mr. Bankman-Fried stole billions of dollars from FTX clients in one of the largest financial frauds in US history. Much of the money, they said, supported the trading firm Alameda Research, also largely owned by Bankman-Fried.
FTX said the company was seeking a license in New York when it filed for bankruptcy. A NYDFS spokeswoman said last month that the agency has never approved the cryptocurrency exchange for doing business in the state.
Crypto imploded in 2022, as investors lost faith in digital assets and the industry was plagued with crises. But unlike other crashes, it has largely prevented it from spreading to other markets. WSJ explains how cryptocurrencies became so interconnected. Illustration: Mallory Brangan
Write to Mengqi Sun at mengqi.sun@wsj.com
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