New York Financial Regulator Wants to Lead on Crypto, Climate Change

New York’s Financial Conduct Authority, which oversees insurance companies and state-chartered banks, already plays a dominant role in financial services, with many other states following its lead in terms of regulation and enforcement. Harris is seeking to bring that leadership role to other areas, including crypto and climate change.

Harris, who left a teaching job at the University of Michigan’s Gerald Ford School of Public Policy to take the NYDFS role, is the first person of color to hold the superintendent position. She served as a senior adviser at the Treasury Department and as chair of a financial task force for the Obama administration. She then became general counsel and head of business development for real estate technology startup States Title, now called Doma Holdings Inc.

The superintendent said she has helped NYDFS secure full funding for the first time since it was formed in 2011. The state government, which sets the agency’s funding, has recommended a 2023 budget of $480.8 million for NYDFS, up 2.4% from previous financial year.

The agency, which employs about 1,300 people, has hired 110 workers since January, including in its insurance and banking units, and has more than 270 vacancies, according to Harris. The agency has also hired more than 25 people this year in its virtual currency unit to regulate the industry.

A key focus for Ms. Harris is regulating new financial services, including cryptocurrency. Her agency, which oversees 31 crypto companies, took its first enforcement action involving the sector in August, imposing a $30 million fine on the cryptocurrency trading unit of online brokerage Robinhood Markets Inc.

for alleged breaches of the regulations against money laundering and cyber security.

The Wall Street Journal spoke with Harris in the agency’s Wall Street office to find out what led her to take on this role and her priorities there. Edited excerpts follow.

WSJ: What drew you to this position?

Adrienne Harris: I’ve worked a lot around fintech because I felt that in our response to the financial crisis we fixed a lot of things that needed fixing, but we were still very backward-looking – and you need to be forward-looking. There’s all this change going on and I was super interested in how the laws were going to work with these new instruments and products. So when [Obama] administration ended … I moved to California to start an insurance company … Once the company had scaled, I took advantage of a great opportunity to teach a degree at the University of Michigan.

WSJ: What are some of your goals for the agency?

Mrs. Harris: The department has had few resources. One of my goals has been to make sure this place is resourced as it should be – it’s the financial capital of the world and the regulator should have the resources to reflect that…We’re hiring like crazy across the board.

One of the advantages of being a government regulator is that you can move quickly and be nimble; you can respond to changes in the market. And I think you’ve seen it from us: With crypto, we got guidance for stablecoins that have reserve requirements. We got it done quickly, while others are still fighting over who has jurisdiction. And because we are the financial capital of the world, it makes sense.

WSJ: What is your approach to regulating cryptocurrency?

Mrs. Harris: New York had a state banking law before there was a national banking law, and that’s why Wall Street was here – because the rules of the road here were clear. And I think the same goes for crypto. There was more crypto investment in New York companies than even in Silicon Valley companies, and I think that’s because there are clear, strict rules of the road here. And we can make rules, we can give guidance, we supervise and investigate, and we can bring enforcement and so that attracts the good actors and that attracts the industry that wants to be here, in the financial capital.

It is not a secret how long it sometimes takes us to license a company, or to approve a new product, but speed is not the right metric. It is important that we are operationally efficient and we have done a lot around process management and improvements.

But think of the crypto winter and all the money that people lost when these companies went under. If speed was the metric, a regulator might have licensed a company that then went under two weeks later, [but] we didn’t have that problem because we have a conscious approach to the bank secrecy act, about cyber. So [we] may not be as fast as people like, but we get the answer right.

We need to tell companies that this is not a ‘check the box’ exercise. This is about risk management. Show us that you are equipped to handle the risks of the products you offer; show us that you have the correct consumer details.

We are currently working on virtual currency guidance for banks. Where some regulators have said, “No, banks, don’t get involved in this at all,” we’ve taken a more realistic view of, “That’s where the market is going.” Let’s lay out clear regulatory expectations [for those] who want to get involved in the space.

WSJ: What are some of your other regulatory priorities?

Mrs. Harris: We will soon issue our banking climate guidance…It’s a very data-driven approach to risk mitigation, operational robustness for our regulated banks…It was important to me that it wasn’t an ideological document because I think as a state we can move quickly and hopefully then become a model for other states, be they red, blue or purple.

The other thing we’ve done is really call out the tension between climate goals and fair lending and equity goals. One of the worst things we can do is say here are climate regulatory requirements, and that causes a bank, for example, not to lend in the area of ​​Queens that was affected by [Hurricane] Ida. It is not a good political result.

Write to Mengqi Sun at [email protected]