New York Attorney General Proposes Crypto Regulation, Protection, Transparency, and Oversight (CRPTO) Act

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On May 5, 2023, New York Attorney General Letitia James released a bill to regulate all facets of the cryptocurrency industry. Titled the Crypto Regulation, Protection, Transparency, and Oversight (CRPTO) Act, if enacted, the bill would significantly expand New York’s oversight of crypto companies doing business in the Empire State, including with respect to relates to privacy and cybersecurity issues.

The bill includes a wide range of measures intended to comprehensively regulate the entire cryptocurrency ecosystem. Subject to certain exceptions for tokens used in online gaming, sports betting, customer loyalty programs and other privileged uses, digital asset is broadly defined in the bill to include any type of digital unit, whether labeled as cryptocurrency, coin, token, virtual currency, or otherwise, that can be used as a medium of exchange, a form of digitally stored value, or a unit of account. The bill also provides that digital assets should be interpreted broadly to include digital units that have a centralized repository or administrator, are decentralized and do not have a centralized repository or administrator, or can be created or obtained by an effort of calculation or manufacture.

Attorney General James’ bill includes a wide range of provisions that would impact various parties who trade in digital assets, including their issuers, brokers, investment advisers, marketplaces, and even social media influencers. Among other things, the bill would impose sweeping rules on such parties with respect to registration, disclosure, verification and conduct of business. For example, digital asset brokers would be required to maintain net capital in the same manner as securities brokers, and digital asset intermediaries would be required to reimburse customers for unauthorized and fraudulent transfers. Many common practices for crypto exchanges would also be banned entirely, such as cross-ownership of digital asset issuers, marketplaces, brokers, and investment advisers; borrow or lend client assets; certain trading strategies; and self-custody of digital assets. The bill would also limit the use of the term stablecoin to describe or market digital assets unless they meet narrow criteria.

The bill provides that every digital asset issuer, digital asset broker, digital asset marketplace and digital asset investment adviser must create, implement and maintain an effective cybersecurity program that meets the requirements of applicable state and federal data privacy and cybersecurity laws. The bill further imposes an unusual obligation on digital asset marketplaces to verify that digital asset software code complies with issuers’ disclosures to buyers and contains security properties that comply with state and federal laws. applicable.

The bill also includes new enforcement authority and anti-fraud legislation for the Attorney General. If passed, the bill further grants the attorney general broad rule-making power.

It’s unclear what the prospects are for the bill passing the New York State Legislature, but the Attorney General’s press release announcing the bill includes supportive comments from numerous political figures, lawmakers, and lawmakers. state and consumer protection advocates.

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