NYDFS Updates and Enhances Framework on Virtual Currency

The New York Department of Financial Services ("NYDFS") updated guidance on a framework for Greenlisted coins (coins that are approved for either trading or custody by the Department) and proposed new guidance on listing and delisting virtual currency for entities engaged in virtual businesses ("VC Entities").

In an industry letter, NYDFS stated that licensed VC Entities do not need prior approval from NYDFS to list coins included on the department’s Greenlist. However, VC Entities that choose to list Greenlisted coins must provide advance notification and have implemented a coin-delisting policy.

NYDFS also proposed guidance for VC Entities seeking to self-certify coins and policies for delisting the coins. Under the proposed guidance, NYDFS said that VC Entities must incorporate into their listing policies:

• approval of the policy from a governing authority that will (i) review and make decisions as to whether to approve or disapprove of each new coin and (ii) mitigate any potential conflicts of interest in connection with the approval process for the coins;
• a comprehensive risk assessment to ensure that the virtual currency is consistent with consumer protection standards under NYDFS regulations; and
• incorporation of the VC Entity's overall risk and compliance framework, including satisfying cybersecurity and illicit finance risk-related obligations.

NYDFS clarified that VC Entities must also have a coin-delisting policy tailored to the virtual currency business activity which takes into consideration factors such as "specific business model, operations, customers and counterparties, geographies of operations, and service providers." NYDFS said that VC Entities would need to address each step involved in the process of removing support for a virtual currency.

Comments on the proposed guidance are due by October 20, 2023.