Crypto regulation could soon take a step forward in the Empire State, as lawmakers weigh new rules proposed by New York Attorney General Letitia James. The goal is to make a nascent industry look a bit more like Wall Street, at least in terms of how it's overseen.
The state has already garnered a reputation for having a robust compliance framework under the New York State Department of Financial Services (DFS), which has regulated crypto firms under its BitLicense regime since 2015.
The legislation proposed by James would further bolster the DFS’s authority, the Office of the New York State Attorney General (OAG) said in a press release, putting forth rules focussed on conflicts of interest, transparency, and investor protections.
“The multi-billion-dollar industry lacks robust regulations,” it claimed, adding that the proposal puts forth the “strongest and most comprehensive set of regulations on cryptocurrency in the nation.”
New York, Berlin Tied for Second Place as 'Most Important Crypto Hub': Survey
A new survey suggests one European capital is best poised to lure in even more of the industry. European crypto projects have named Lisbon as the world’s most important crypto hub, according to its biannual State of European Crypto Report 2023 published today by European crypto investment firm Greenfield. The report anonymously surveyed 68 heads of companies and protocols whose founding members are European in origin or are also headquartered in Europe. Despite the anonymized survey, a spokesper...
The proposal comes amid a nationwide uptick in regulatory scrutiny and follows a turbulent year for the industry, defined by several high-profile bankruptcies and thousands of investors burned. The office called out the conduct of several firms like the defunct crypto lender Celsius and Terraform Labs as examples of behavior that would be outlawed.
The OAG said it will submit the bill—the Crypto Regulation, Protection, Transparency, and Oversight Act, or CRPTO Act—to state lawmakers for consideration during the 2023 legislative session, which will end on June 8.
The bill draws on regulations that already exist in traditional finance, which could be viewed as notable in terms of legitimizing the digital assets space, General Counsel at Hashflow Rahsan Boykin told Decrypt.
“This is a positive move towards greater transparency and accountability,” he said. “The new legislation [...] is aimed at imposing the same rules on crypto firms that many current security industry participants have to comply with.”
New York Regulators Warn Crypto Companies Against Commingling Customer Funds
Crypto companies were put on notice on Monday when New York regulators issued a new warning about how to properly handle their customers' digital assets. In an open letter addressed to the industry, the New York Department of Financial Services (NYDFS) outlined how customer assets should be separated from each other, how they should be used by custodians, and how to maintain the proper disclosures required when holding on to digital assets for clients. The new set of guidelines applies to compan...
However, Boykin noted that state-by-state regulation has the potential to be somewhat counterproductive, pushing companies out of areas with stringent regulations or creating an “uneven playing field” for those that stay.
And while Boykin believes that New York’s CRPTO bill is good, he added that a national regulatory structure would ultimately be best, ensuring the industry is regulated consistently.
A major portion of the bill is devoted to preventing conflicts of interest. Some measures include preventing market participants from being token issuers, marketplaces, and brokers at the same time—requiring them to stick with one role.
Yet, overall, it’s unclear how effective the new rules would be or if they could prevent crypto’s next collapse, Head of Compliance at Zeebu and Valuit Timothy Cradle told Decrypt.
“I like what the DFS is going for,” he said. “However, these aren’t novel rules, and I have concerns that they won’t be effective in achieving their intended aims.”
New York Attorney General Sues KuCoin, Claims Ethereum Is a Security
The New York Attorney General's office today filed a lawsuit against cryptocurrency exchange KuCoin for allegedly violating securities and commodities laws in the state. In the complaint, Attorney General Letitia James makes the startling claim that not only are Terra (LUNA) and TerraUSD (UST) securities, as previously alleged by the United States Securities and Exchange Commission, but also Ethereum (ETH), the second-largest cryptocurrency by market capitalization. “This action is one of the fi...
The OAG claims in a blog post that public disclosure requirements could’ve prevented Celsius’ customers from being blindsided last summer, for example. Cradle contends that audited financial statements for Celsius were available publicly and pre-crash through the UK’s House of Companies.
Requiring private companies to open up their books when they otherwise wouldn’t have to could also be unpalatable, Cradle said, describing it as somewhat of an “ultimatum” toward digital asset firms to comply or stay away.
“I support the requirement,” he said. “I just don’t think it will genuinely protect the consumers.”
The CRPTO bill also includes new rules regarding stablecoins, banning the term from being used to describe digital assets that aren’t fully backed by U.S. dollars or high-quality assets that can easily be converted into cash.
Cradle said it seems like an interesting concept, but he cast doubt on how effective it would be at protecting consumers, saying clever crypto marketers could come up with a new, similar term like “dollar coin,” for example.
