New York regulator may set world standard for crypto

Regulators in New York are poised to set the standard for crypto firms in the US and worldwide with their licensing regime that the crypto industry covets and loathes to be attainable.

Status: Superintendent Adrienne Harris took the helm of the state’s Department of Financial Services in January 2022, and has since expanded the regulator’s unique oversight of digital assets.

• It also supervises banks and insurance companies.
• The NYDFS is, in effect, “the sole supervisory regulator [with] virtual asset-specific authority in the country,” Harris said yesterday at the Chainalysis Links conference in New York.

The regulator handed out its first crypto enforcement actions this year to Coinbase and Robinhood Crypto, but it was the recent action in the banking sector that crypto supporters have questioned.

Driving the news: “The idea of ​​taking possession of signature [Bank] was about crypto or that this is Choke Point 2.0 is really ridiculous,” Harris told attendees, rolling his eyes.

• The problem at Signature was a “new-fashioned bank run”.
• In that situation, “the regulators working together have no choice but to make sure depositors are protected,” she said.
• “If you look at our rules and our guidance … they necessitate strong banking partnerships with well-regulated banks. The idea that we don’t want these banks to exist just doesn’t make logical sense.”

Yes, but: The FDIC blocked potential buyers of Signature from operating its crypto business.

Quick take: When New York’s BitLicense was enacted in 2015, it was hailed as among the more onerous, industry-chilling regimes in the city.

• Now in the wake of major crypto disasters, it is being cast as a saving grace.
• Be smart: With that, Harris doesn’t necessarily have to prove whether a particular crypto is a commodity or a security, an arguably lower hurdle to regulate the industry compared to, say, the CFTC or the SEC.

What they say: “When you think about ills that have crossed the market — especially the crypto market — I think the rules we have were pretty prophetic, making sure that most of that fate didn’t befall our licensees,” Harris said.

• Context: FTX.US in May 2022 applied for a government trust charter, months before the international FTX.com collapse.

The other side: It’s no secret that the BitLicense process has been slow, which Harris doesn’t deny.

• “Speed ​​is not the right metric,” she said. “It’s proven by the fact that we didn’t license, right? FTX, and now many other infamous names.”

The big picture: Illinois and California are not the only ones looking to New York as an example.

• Harris has been sharing crypto regulatory best practices with people outside the US and plans to visit the United Arab Emirates as well as Western Europe in the coming weeks.
• People tell her, “We know that if a company meets New York standards, they will meet ours,” she said.

What we’re looking at: Harris seems to want to tighten the screws on crypto regulation, with what she calls: “real-time oversight.”

Bottom line: “This idea that regulators would only come in once a year, go through books and interview employees… might have been appropriate for the 20th century financial system, but certainly not for the 21st century,” she said.