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New York regulator orders banks to apply for permission before engaging with crypto

New York regulator orders banks to apply for permission before engaging with crypto

The New York Department of Financial Services (NYDFS) has extended its grip on the attempt to control the crypto sector by unveiling new guidelines targeting the involvement of banks in digital currencies. 

In particular, the NYDFS has released a new guideline requiring banks operating in the state to apply for advance permission before they engage in cryptocurrency-related initiatives, the agency said in a December 15 publication.

The guidelines also affect third-party agents affiliated with the banks alongside branches and agencies of foreign banking entities under its jurisdiction.

Requirements for application

Banks applying for permission are required to share information related to their business plan, risk management, corporate governance and oversight, consumer protection, financials, and legal and regulatory analysis.

“As the virtual currency market evolves, and as New York-regulated institutions continue to innovate, the Department expects to thoroughly assess a Covered Institution’s proposed virtual currency-related activity for safety and soundness. This guidance does not interpret existing law or regulation and does not otherwise take a position on the types of activities that may, as a legal matter, be permissible for Covered Institutions to undertake,” the regulator said. 

Notably, the agency noted that the laws aim to protect banking entities, consumers, and the general market from the risks associated with cryptocurrencies. 

In coming up with the guidance, NYDFS noted that it conducted an extensive analysis of the current crypto regulatory landscape alongside monitoring market trends. 

New York’s crypto regulation outlook

It is worth mentioning that with the growing popularity of the cryptocurrency sector, the New York regulator has moved to regulate it, setting the pace for the rest of the United States. As reported by Finbold, the entity enacted its first crypto enforcement action against online brokerage firm Robinhood

NYDF slapped Robinhood’s crypto trading subsidiary with a $30 million fine for alleged anti-money-laundering and cybersecurity standards violations.

The regulatory activity has accelerated in 2022 with the high-profile crypto sector incidents that saw investors lose funds. For instance, after the collapse of the Terra (LUNA) ecosystem crash, NYDF released new guidelines relating to the issuance and management of stablecoins.

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