NYDFS Issues Guidance on USD-backed Stablecoins

The New York State Department of Financial Services ("NYDFS") provided regulatory guidance establishing baseline criteria for USD-backed stablecoins issued by NYDFS-regulated entities.

In an Industry Letter, NYDFS outlined criteria specifically addressing (i) stablecoins' redeemability, (ii) asset reserve requirements backing such stablecoins and (iii) independent audits. Among other things, the criteria:

• ensure the stablecoin is fully backed by a reserve of assets, meaning that "the market value of the [r]eserve is at least equal to the nominal value of all outstanding units of the stablecoin as of the end of each business day";

• require entities to adopt clear, conspicuous redemption policies that are (i) approved in advance by NYDFS in writing and (ii) "confer on any lawful holder of the stablecoin a right to redeem units of the stablecoin from the [i]ssuer in a timely fashion at par" for the U.S. dollar;

• enforce reserve requirements, specifying which types of currencies are allowed to be held in reserves and mandating that reserves be stored separately from each issuer's proprietary assets and held by U.S. state or FDIC-backed institutions; and

• require issuers to undergo regular audits at least once a month conducted by an independent CPA and conforming to the American Institute of Certified Public Accountants' attestation standards.

NYDFS noted that the criteria are not the only requirements that apply to the issuance of stablecoins. NYDFS said it looks to a range of factors before authorizing a regulated entity to issue a stablecoin, including (i) "risks relating to cybersecurity and information technology; (ii) network design and maintenance; (iii) related technology and operational considerations; (iv) [BSA/AML] and sanctions compliance; (v) consumer protection; (vi) safety and soundness of the issuing entity; and (vii) the stability/integrity of the payment system, as applicable." NYDFS stated that it may modify its requirements with respect to particular stablecoins in order to ensure their compliance with NYDFS's statutory mandate, laws and regulations. NYDFS also asserted that it will continue to update the guidance as new market information becomes available.