• NYDFS issued guidelines to tighten the pre-license verification process for banking organizations planning to engage in crypto activities.
• The guidelines will apply both to local financial institutions as well as local branches of foreign financial entities with NYDFS licenses.
• Banks need to provide information & & documents across six broad segments.

Adrienne A. Harris, Superintendent of the New York Department of Financial Services (DFS), issued crypto-related guidelines for all banking organizations in New York on December 15th. It applies to both US-based financial entities and local branches of foreign banks with a DFS license.

The aim is to tighten the review process before granting licenses to banks for engaging in crypto operations.

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The FTX collapse prompted NYDFS to take precautionary measures against any future fallout of such scale.

NYDFS insists this step would protect the hard-earned money of common investors while maintaining the competitive edge of financial institutions in a fast-changing financial market.

Key Points

Any financial institution that wants to engage in any crypto activities will have to furnish a business plan with six categories of information at a broader level to the NYDFS.

These six categories are assets/currency, risk management strategy, corporate governance and oversight mechanism, consumer protection strategy, financials, and legal and regulatory analysis.

According to the agency, this information would enable it to properly assess the plans and proposals.

The guidelines also include a supplemental checklist of initial documents and information that a financial entity should provide the NYDFS while applying for a crypto license.

Regulatory Trends

NYDFS insists that it is crucial to set the expectations clearly and “communicate in a timely, transparent manner” as the regulatory approach keeps evolving.

And to play its part efficiently, the DFS claims to have analyzed the regulatory landscape minutely, assessed the prevailing trends in the market, and talked to consumer advocates, state and federal regulators, industry analysts and experts, and academics.

What’s Expected From Institutions Already Engaged in Crypto Activities?

Institutions already involved in crypto-related activities must “notify its point of contact at the Department if it has not already done so.”

Then, “The Department will seek further information or clarification and impose supervisory requirements, as needed,” says the release.

Reaction to the Proposal

Surprisingly, the industry reaction to NYDFS’ guidance for banks to engage in crypto activities has been quite positive, with some users calling it a “much-needed” move and another user saying, “this decision looks good.”

Some users also welcome NYDFS’ latest guidelines for banks as they believe cryptocurrencies significantly impact the risk profile of traditional financial institutions.

That is not to say there is no criticism. For instance, one user said, “This is huge. Why is nobody in Crypto talking about this? NY — DFS is saying that if you touch or do anything with Cryptocurrency, you need to have their direct approval if any residents of New York are involved. CEX providers are going to be out of compliance, quick.”

Overall as of now, the positive responses are predominant. But the true picture will only emerge once the guidance is implemented and financial institutions start complying with it.

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