Banks in New York State must first seek approval from the regulator before entering the cryptocurrency sphere, effective Thursday 15 December.

The New York Department of Financial Services (DFS) issued a guidance document “to all New York banking organizations, as well as all branches and agencies of foreign banking organizations licensed by the Department (together, “Covered Institutions”), to convey the Department’s expectations for Covered Institutions that wish to engage in virtual currency-related activity”.

The Guidance “reminds Covered Institutions that, as a matter of safety and soundness, they are expected to seek approval from the Department before engaging in new or significantly different virtual currency-related activity”. The DFS requires 90 days’ notice of “any new or significantly different crypto-related activities”.

Critical for consumer protection

DFS Superintendent Adrienne A Harris said: “Today’s Guidance is critical to ensuring that consumers’ hard-earned money is protected, that New York regulated banking organizations remain resilient and competitive, and that the expectations are clear for those that wish to submit proposals for virtual currency-related activity.”

Those institutions already involved in virtual currency-related activities are required to notify the DFS to provide clarification, information and so that supervisory requirements can be assessed.

The Guidance Document explains that the DFS expects to “thoroughly assess a Covered Institution’s proposed virtual currency-related activity for safety and soundness”. It goes on to make clear that “This Guidance does not interpret existing law or regulation and does not otherwise take a position on the types of activities that may, as a legal matter, be permissible for Covered Institutions to undertake. Rather, this Guidance describes the process a Covered Institution should observe for seeking prior approval for a proposed virtual currency-related activity and summarizes the types of information the Department considers relevant in assessing such a proposal.”

Banks will need to provide information under six categories;

• business plan;
• risk management;
• corporate governance structure;
• consumer protection;
• financial impact;
• legal and regulatory impact.

While the DFS statement describes the Guidance as “final” it also says it “looks forward to continuing to engage with key stakeholders on these important issues.”