New York Financial Regulator Issues Crypto Guidelines for Banks

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New York’s financial regulator said banks looking to enter the cryptocurrency space must first seek approval from the regulator.

The New York Department of Financial Services, in a guidance document released Thursday, said it would assess new crypto-related activities offered by financial institutions against the potential risks they could pose to banks and merchants. consumers, and detailed the process for entities hoping to obtain authorization to offer cryptographic products and services.

U.S. banks and foreign banks with branches in New York that are under NYDFS oversight must notify the agency at least 90 days before beginning any new or significantly different crypto-related activity, according to the guidelines.

Additionally, banks are required to submit information in six categories: outlining their business plan, explaining how they will manage enterprise-wide crypto risks, providing details on how they will put in place their corporate governance structure, how consumers will be protected, as well as set out their financial statements and provide legal and regulatory analysis. The guide also includes an additional checklist of documents that banks must provide.

NYDFS is one of the first state financial regulators to issue such guidelines for banks. The DFS regulations and guidance together form an oversight framework that helps protect consumers and keep businesses safe and sound, an agency spokeswoman said in an email.

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NYDFS Superintendent Adrienne Harris said the guidance is needed as traditional financial institutions continue to innovate and the crypto market evolves over time.

Ms Harris also said last month that the agencies’ application process was designed to vet complex companies such as cryptocurrency exchange FTX in a personalized way to ensure they had sound finances and controls. appropriate risks 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 outsized role nationally in overseeing the financial services industry. Ms Harris, in an interview with The Wall Street Journal earlier this year, said she was looking to use the state’s role as a leader in financial services to help set the regulatory agenda nationwide. , with a particular focus on bringing order to the cryptocurrency industry. .

It is essential that regulators communicate in a timely and transparent manner about the evolution of our regulatory approach, Ms. Harris said in a statement Thursday. Today’s guidance is essential 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 for those wishing to submit business proposals. activity related to virtual currency.

The guidance also comes as more details emerge on FTX’s collapse. After the exchange filed for bankruptcy last month, its former chief executive and founder, Sam Bankman-Fried, was arrested in the Bahamas on Monday after the United States filed criminal charges. Prosecutors and regulators this week alleged 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, backed 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. A NYDFS spokeswoman said last month that the crypto exchange had never been approved by the agency to do business in the state.

Write to Mengqi Sun at [email protected]

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