1 year ago
On Nov. 15, 2023, the New York Department of Financial Services (NYDFS) issued caller standards for virtual currency (coin) listings and delistings. These caller regulations use to Bitlicensees and limited-purpose spot companies and see concern exemplary considerations for virtual currency entities (VCEs), updated hazard appraisal expectations for VCEs, caller beforehand notification requirements, and updated definitions.
The pursuing editorial was written by impermanent authors Wyatt Noble and Michael Handelsman for Kelman.Law
VCE Coin-Listing Policies
Under the latest guidance VCEs with anterior approvals for coin-listing policies indispensable person NYDFS support for some their coin-listing and coin-delisting policies earlier self-certifying immoderate coins. Once NYDFS approves some policies, VCEs whitethorn self-certify coins for New York-based activities. However, without NYDFS-approved listing policies, VCEs volition astir ever beryllium restricted to listing coins connected the NYDFS Greenlist, barring circumstantial NYDFS approvals. Additionally, the NYDFS retains discretionary authorization to necessitate VCEs to delist coins oregon restrict entree for New Yorkers to non-Greenlist coins.
Coin-Listing Governance Requirements
VCEs are required to person their committee of directors oregon equivalent governing authorization actively progressive successful the oversight of coin-listings. This includes yearly approvals of the coin-listing policy, decision-making connected caller coin listings, and ensuring independency from those proposing coin listings oregon delistings. They indispensable besides negociate and disclose immoderate conflicts of interest, support compliant recordkeeping accessible for NYDFS review, and promptly notify NYDFS of immoderate non-compliance oregon worldly changes to their coin-listing policy.
Further, the governing authorization indispensable annually reassess the coin-listing argumentation to guarantee ongoing hazard mitigation and support its independency from the archetypal proposal process for listing oregon delisting coins. The NYDFS hopes this enhanced governance model volition bolster hazard absorption and support precocious standards of regulatory compliance amongst VCEs that comply.
Coin-Listing Risk Assessment Requirements
In effect to requests for greater clarity of hazard appraisal expectations, the NYDFS highlighted respective circumstantial risks VCEs indispensable assess. These risks include: method plan and technology, operational, cybersecurity, marketplace and liquidity, illicit finance, legal, reputational, and regulatory. The last guidance requires VCEs to see different factors to place and mitigate risks circumstantial to each coin and its uses, and wherever applicable, to incorporated NYDFS guidance connected the prevention of marketplace manipulation and different wrongful activities.
Specifically, VCEs indispensable besides place and mitigate risks stemming from conflicts of involvement by having policies and procedures that mitigate immoderate specified conflicts from impacting decisions, recommendations, and assessments made for each coin nether review. When VCEs place imaginable conflicts of involvement relating to coin-listing decisions, they indispensable intelligibly disclose those imaginable conflicts to the public. Additionally, VCEs are broadly charged with ensuring that each customers are treated reasonably and are afforded the afloat extortion of each applicable laws and regulations, including extortion from unfair, deceptive, oregon abusive practices.
Limits of VCE Self-Certification
The caller guidance contains strict requirements for VCEs self-certifying coins. First, coins utilized to circumvent laws oregon conceal identities are ineligible for self-certification. Restrictions besides use to non-Greenlist stablecoins, speech coins, and coins connected protocols with decentralization concerns oregon important attraction risks. Additionally, VCEs are prohibited from self-certifying bridged coins and those with little than 35% circulating supply. VCEs indispensable petition NYDFS support for listing specified coins and indispensable see a broad hazard appraisal and specified concern usage case.
VCE Coin Monitoring
VCEs indispensable person robust monitoring policies for self-certified coins. These policies indispensable guarantee that self-certified coins align with safety, lawsuit protection, and compliance standards, which see yearly re-evaluations, hazard absorption controls, and a wide coin-delisting policy. Additionally, VCEs are expected to adhere to the NYDFS’s guidance connected blockchain analytics and comply with Bank Secrecy Act and anti-money laundering and sanctions-related controls.
VCE Coin Delisting Requirements
The caller guidance besides clarified the NYDFS’s expectations concerning coin delistings by VCEs. VCEs indispensable beryllium prepared to discontinue enactment for coins that contiguous elevated risks and bash truthful successful a mode accordant with information and soundness principles and with the extortion of customers and the public.
Coin-delisting policies indispensable beryllium comprehensive, reflecting the VCE’s concern model, operations, lawsuit base, operational geographies, work providers, and the characteristics of the coins, however, constricted exceptions whitethorn use taxable to NYDFS approval. Additionally, VCEs were required to conscionable with the NYDFS by December 8, 2023, to sermon draught coin-delisting policies. While the deadline for those archetypal meetings passed, last policies are not owed until Jan. 31, 2024.
Within wide coin delisting requirements, determination are 2 subcategories of minimum requirements for VCEs and their policies, governance and policy.
Delisting Governance Requirements
As to governance, VCEs indispensable get support from their governing authorization for their coin-delisting policies, behaviour yearly reviews for effectual hazard management, and support independency from those recommending coin listings oregon delistings. VCEs indispensable besides support close records disposable for NYDFS reappraisal and request to pass the NYDFS successful penning astatine slightest 10 concern days earlier delisting a coin. Further, erstwhile VCEs notify the NYFDS they volition beryllium delisting a coin, VCEs indispensable item their rationale for doing truthful and supply a timeline. Additionally, VCEs cannot marque important changes to their coin-delisting policies without obtaining written support from the NYDFS.
Delisting Policy Requirements
Under the caller guidance, coin-delisting policies indispensable incorporate broad outlines of the delisting process, including criteria thresholds prompting delisting and integrating with the VCE’s monitoring procedures. VCEs are directed to regularly reappraisal and update these procedures, taking into relationship imaginable triggers for updates specified arsenic caller findings, ineligible oregon regulatory changes, oregon directives from the NYDFS. VCEs indispensable found roles and responsibilities for each benignant of trigger lawsuit to supply wide instructions for stakeholders depending connected the circumstances.
Key elements related to executing a delisting lawsuit see providing astatine slightest 30 days’ beforehand announcement to customers (unless different directed by NYDFS), answering lawsuit questions and assisting with the merchantability of their impacted coins, documenting each aspects of the delisting decision, conducting ongoing monitoring for information and soundness, and assessing the interaction connected the VCE’s operations, counterparties, and work providers.
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