The New York State Department of Financial Services (DFS) views itself as the leading cryptocurrency state regulator in the country. Its regulatory scheme began with its introduction of the BitLicense, a set of regulations that prohibited companies from engaging in “virtual currency business activity” in New York, or with New York residents, without a license. Very few were actually applied for, and fewer still issued. Much has been written about how this regulatory environment has stymied innovation in New York.
On June 24, 2020, informed by its experience as the regulator of BitLicenses and New York-chartered limited purpose trust companies engaged in virtual currency business activity (collectively, “VC Entities”), DFS published its prior Guidance Regarding Adoption or Listing of Virtual Currencies (“Prior Guidance”). On November 15, 2023, DFS issued Guidance Regarding Listing of Virtual Currencies (“Guidance”), which took effect immediately and entirely superseded the PriorGuidance. The Guidance applies only to the 33 VC Entities but that includes companies such as Circle, Gemini, Fidelity, Robinhood and Paypal.
Under the new Guidance, companies that previously had an approved cryptocurrency listing policy cannot self-certify any listings until they have both listing and delisting policies approved by DFS. “A VC Entity’s coin-listing policy must include robust procedures that comprehensively address all the steps involved in the review and approval of coins. The policy must be tailored to the VC Entity’s specific business model, operations, customers and counterparties, geographies of operations, and service providers; and must also account for the use, purpose, and specific features of the coins being considered.” The coin-listing policy must address governance, risk assessment and monitoring.
In the event a listed coin is identified as presenting newly elevated risk, VC Entities must be able to discontinue support of that coin in a manner that is consistent with safety and soundness principles and with the protection of customers and the general public. Therefore, all affected companies must have a coin delisting policy even if they do not have a listing policy. The Guidance requires all VC Entities to meet with DFS by December 8, 2023 to preview their draft coin-delisting policy. Final coin-delisting policies must be submitted to DFS for approval by January 31, 2024.
VC Entities without DFS-approved coin-listing policies may only list cryptocurrencies that are included on the DFS greenlist. At one time, there had been more than 20 greenlisted tokens, including XRP, Dogecoin, Litecoin and Bitcoin Cash. Now, there are only eight — Bitcoin and Ether, as well as six stablecoins from Paypal and Gemini.