On December 11, 2019, DFS published a proposal to create a public list of approved virtual currencies and a self-certification methodology for holders of NY Bitlicenses and New York trust companies approved to engaged in a virtual currency business (together, VC Licensees) to offer to New York consumers virtual currencies without the need for additional approvals of the DFS.
The DFS proposal, if adopted, would be a significant step at the state regulatory level toward treating digital assets in a manner commensurate with other more traditional financial assets. Until now, most regulatory activity at the state level has related to the approval of licenses or charters for different types of digital asset providers or the regulatory definition of digital assets. For example, the Conference of State Bank Supervisors has proposed a model law to define money and virtual currency, and Arizona, Utah, Wyoming and Colorado have adopted fintech sandboxes that extend to virtual currency providers. The DFS proposal, in contrast, attempts to create a regulatory framework more similar to that of other banking, securities and commodities products, in that VC Licensees can develop their own listing policies and, once a policy is approved by DFS, the VC Licensee will be able to self-certify new digital products offered in New York.
The DFS proposal has two components. First, DFS will maintain a webpage that will contain a list of approved digital coins. Without any additional approval of DFS, a VC Licensee could broker, sell, exchange, custody or conduct other business with respect to the coins on that list. The initial list is expected to include: Bitcoin, Bitcoin Cash, Ether, Ether Classic, Litecoin, Ripple, Paxos Standard and Gemini Dollar. Second, DFS has proposed that VC Licensees could self-certify the listing or adoption of new digital coins (with notice to DFS but without additional DFS approvals) as long as the VC Licensee has adopted a tailored coin listing or adoption policy that has been approved by DFS. VC Licensees that have not had such a policy approved will still be required to get DFS approval for any coin other than those listed on the DFS website.
The policy must include robust procedures that comprehensively address all steps involved in the internal review and approval of virtual currencies. Notably, the framework requires that the risk assessment procedures described below are subject to an external audit. The policy should be tailored to the business model, operations, customers and counterparties, geographies of operations, service providers, and the use, purpose and specific features of the digital coins being considered. The following are components of a coin listing policy:
DFS is seeking comments on its proposed guidance by January 27, 2020.