On September 18, 2023, the New York Department of Financial Services (“DFS”) announced new proposed guidance for BitLicense holders and certain limited-purpose trust companies (“VC entities”) seeking to list virtual currencies on their platforms. The proposed guidance would replace existing DFS procedures and establish new protocols for listing virtual currencies that are not subject to the DFS greenlist.
The proposed guidance seeks to provide a framework under which VC entities may seek DFS approval to self-certify the listing of new coins. In order to self-certify a coin listing without the prior approval of DFS, a VC entity must create a coin-listing policy in accordance with the proposed guidance that considers four broad categories of issues: governance, risk assessment, ongoing monitoring, and delisting. From a governance perspective, the proposed guidance would require a VC entity to have an independent board of directors or equivalent body that would approve and oversee the overall listing process, with a particular focus on managing actual or potential conflicts of interest.
Additionally, the VC entity would be required to perform a comprehensive risk assessment to ensure that any coin is consistent with DFS regulations, consumer protection, and the safety and soundness of the VC entity. The proposed guidance identifies a variety of potential risks to consider including, without limitation, technical design and technology risk, operational risk, cybersecurity risk, market and liquidity risk, illicit finance risk, legal and reputational risks, and regulatory risk. According to DFS, mitigating conflicts of interest and ensuring customer protection should be at the forefront of risk management. The proposed guidance also calls out several types of coins, such as stablecoins and bridge coins, that cannot be self-certified.
The proposed guidance further provides that a VC entity seeking to self-certify a coin must have policies and procedures in place to monitor the coin to ensure that its continued listing remains consistent with safety and soundness principles, the protection of customers and the general public, and the other requirements of the proposed guidance. As nonexclusive examples of such policies and procedures, the proposed guidance highlights periodic re-evaluation of the coin to assess whether material changes have occurred, documentation and implementation of control measures to manage risk, and an orderly coin-delisting process. DFS must approve the coin delisting process in advance, and the process should ensure that there are sufficient governance features with due regard to the impact delisting may have on consumers, as well as provide for a detailed process that underlies the delisting events. DFS generally expects that a VC entity will provide at least 30 days’ prior written notice to customers of a delisting event and ensure there is adequate customer support, including appropriate documentation, ongoing monitoring of safety and soundness, and due consideration of second-order impacts a delisting decision might have on the VC entity’s operations and counterparty relationships.
Public comments on the proposed guidance are due by October 20, 2023.