New York state financial regulator Adrienne Harris argued that crypto’s “element of anonymity” creates an environment in which it can be used in illicit finance.
Speaking on a panel at the Financial Times Crypto Winter Summit, Harris, who serves as Superintendent of the New York Department of Financial Services (NYDFS) said that crypto “really is an environment that lends itself to illicit finance, to bad actors.”
Using the example of a ransom payment in cash, Harris pointed out that, “someone still has to show up to the drop site,” arguing that, “with digital currency, that’s not the case, even though it has this element of traceability.”
Harris added that the question of “the illicit finance component of cryptocurrency” has been on the minds of state and federal regulators for several years. “I think that's going to continue, and attention on that is going to be heightened as a result of Binance, and some of the other cases that have been brought by DOJ and other authorities around the world,” she said.
“Socializing” crypto firms
Harris said that one challenge faced by NYDFS is “socializing” crypto firms to the regulatory environment.
“For us, it really has been a mission to socialize our companies,” she said, pointing out that existing financial services companies like banks, insurance companies or mortgage lenders are “used to having regulators and know what that interaction is supposed to be like.”
That’s required a “tone reset,” Harris said, with NYDFS laying out the rules and its expectations of crypto firms, and bringing enforcement actions where necessary. She pointed to the regulator’s $100 million case against Coinbase and its $30 million case against Robinhood as examples.
“What we see generally is that the business scales much faster than the compliance apparatus,” she said, pointing out that in the majority of cases where businesses have fallen out of compliance with its regulations, “they are almost exclusively around illicit finance and cybersecurity violations.”
Harris also argued that crypto firms should be “resourcing compliance appropriately.”
While there’s been much talk about blockchain technology lending itself to robust KYC, that hasn't materialized yet. “When we do investigations of our companies, we find reams of paper in the offices, and I'm always stunned,” she said. “You have to be a mature financial services company, if you want to be a part of this ecosystem.”
Edited by Stacy Elliott.