Since the New York Department of Financial Services (“NYDFS”) finalized regulations for virtual currency firms in 2015, several regulated virtual currency licensees (“Licensees”) have sought permission to issue new virtual currencies (i.e., coins) in addition to those included in their initial license applications. On December 11, 2019, NYDFS issued Proposed Guidance in response to these requests, and will accept comments until January 27, 2020.
Proposed Model Framework
The Proposed Guidance discusses a proposed model framework for a coin-listing or adoption policy (“Policy”) and a procedure for obtaining NYDFS approval of a Policy. Specifically, the Proposed Guidance would require each Policy to address, at a minimum, the Licensee’s governance, risk, and monitoring of its coins.
The board of directors of the Licensee, or any equivalent governing body, must:
- Approve the Policy;
- Independently make decisions to approve or disapprove a new coin;
- Consider and address any and all conflicts of interest in connection with any review and/or decision-making process for a new coin;
- Maintain specific minutes for meetings during which a new coin is addressed; and
- Keep specific records of the application of the Policy to each new coin.
The Licensee must conduct and document a full risk assessment of any new coins in a way that is entirely free of conflicts of interest. It must consider operational risks, risks associated with any technology or systems enhancements, cybersecurity risks, risks related to code defects, and legal and regulatory risks. A Licensee also must ensure that an independent audit of all associated risks is conducted.
A Licensee must maintain policies and procedures to monitor adherence to the Policy. At a minimum, such policies and procedures must include:
- Periodic re-evaluation of the coin;
- Adoption, documentation, and implementation of control measures to manage risks; and
- A process for de-listing the coin.
A Licensee may submit its Policy to the NYDFS for formal approval. After receiving approval, the Licensee will be able to self-certify to NYDFS that its proposed adoption or listing of new coins complies with its NYDFS-approved Policy. After self-certification, a Licensee need only provide prior written notice to the NYDFS of its intent to offer and use the new coins. A Licensee with an approved Policy would not be required to obtain the approval of the NYDFS for a new coin, unlike a Licensee that does not maintain an approved Policy.
Significantly, all Licensees, irrespective of whether they maintain a Policy approved by the NYDFS, must inform the NYDFS of all coins used or offered in connection with their business activities no later than at the time of their next quarterly filing.
Interested parties should submit their comments to email@example.com by January 27, 2020, with the subject line “Proposed Coin Listing Policy Framework.” All such comments may be subject to public inspection.
NYDFS Superintendent Linda Lacewell has indicated that she wants New York to remain at the “jurisdiction of choice” for innovation, and these Proposed Guidelines are indicative of the state’s continued efforts to keep that standing. To that end, we can expect to see the NYDFS provide further regulatory clarity and efficiency for emerging financial services technologies and take steps to ensure that its regulation reflects the industry’s fast-paced, evolving market.
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