On June 24, 2020, the New York Department of Financial Services (DFS) announced a series of five initiatives involving virtual currency. The announcement was timed to coincide with the five-year anniversary of the launch of New York’s BitLicense for operators of certain virtual currency businesses.
In one initiative, DFS signed a memorandum of understanding (MOU) with the State University of New York (SUNY). The MOU contemplates that SUNY will establish an entity authorized by DFS to conduct virtual currency business activity, either under a BitLicense or as a limited purpose trust company chartered under the New York Banking Law (each, a “VC Entity”). In turn, individual SUNY campuses will provide to entities from local communities, including entities started or run by students or alumni, guidance and encouragement in applying for and receiving conditional BitLicenses from DFS. These applicants and conditional BitLicense holders will collaborate and engage with the VC Entity for various services and support, such as those relating to structure, capital, systems, and personnel.
Additionally, DFS requested comment on a proposed framework for a conditional virtual currency license. Under the proposal, entities may apply for a conditional license when partnering with an existing entity authorized by DFS to engage in a virtual currency business activity. The existing licensee would provide the conditional licensee with the operational, staffing, and other support the conditional licensee may need until it can obtain a full DFS virtual currency license or limited purpose trust charter on its own. Comments are due by August 10.
DFS also announced final guidance regarding adopting or listing of virtual currencies. Under the final guidance, a VC Entity that wishes to self-certify the use of new coins, in addition to those on a DFS greenlist, without the prior approval of DFS, must create a coin-listing policy. The policy must include robust procedures that address all steps involved in the review and approval of coins, including governance, risk assessment and ongoing monitoring. The policy must be tailored to the VC Entity’s specific business model, operations, customers and counterparties, geographies of operations, and service providers, as well as the use, purpose, and specific features of coins being considered. Importantly, the policy should result in self-approval of a coin only if the VC Entity concludes that the coin’s intended use or adoption is consistent with DFS consumer protection standards and with the safety and soundness of the VC Entity.
Finally, building on DFS’s five years of experience issuing BitLicenses and feedback from the business community, the agency also issued updated BitLicense application procedures and virtual currency FAQs. Among other things, the FAQs reiterate DFS’ long-standing position that an out-of-state business must obtain a BitLicense if it engages in virtual currency business activity involving New York State or any person that resides, is located, has a place of business, or is conducting business in New York State.