NYDFS issues guidance for banks interested in virtual currency

The guidance comes more than seven years since the department adopted virtual currency licensing rules (23 NYCRR Part 200). Banks have been required since then to seek permission from the NYDFS before launching into virtual currency activities.

The guidance serves as a reminder banking institutions will be expected to engage in an extensive application process.

The NYDFS “takes seriously the potential risks that novel activities, including in particular virtual currency-related activities, may pose to covered institutions, to consumers, and to the market in general,” the guidance stated. The department “will make a comprehensive assessment of information presented under this guidance to determine whether any proposed activity would—based on the facts and circumstances presented and including the risk mitigation measures the covered institution has developed to support the activity—be appropriate for a covered institution to undertake,” it said.

The 11-page guidance provides details about what information the NYDFS will seek from applicants. The information falls into six categories: business plan, consumer protection, corporate governance and oversight, financials, legal and regulatory analysis, and risk management. The guidance also includes a checklist for potential applicants.

The department “expects to thoroughly assess a covered institution’s proposed virtual currency-related activity for safety and soundness,” according to the guidance. Institutions already undertaking virtual currency activities must contact the NYDFS for clarification about what information might be required.

The NYDFS created the guidance after conducting a “robust analysis” of existing regulations and market trends and gathering feedback from consumer advocates, the banking industry, academics, and federal regulators.

The guidance is “critical to ensuring that consumers’ hard-earned money is protected, that New York regulated banking organizations remain resilient and competitive, and that the expectations are clear for those that wish to submit proposals for virtual currency-related activity,” NYDFS Superintendent Adrienne Harris said in a press release.

Though the guidance is final, the department invited stakeholders to provide comments that it will “take into account as it continues to supplement and refine” the rules, it said.