Sep 20, 2023

New York's financial regulator wants tougher restrictions on crypto coin listings for companies regulated in the state, especially if they target retail clients.

Video transcript

The state of crypto is presented by Tron connecting the world to the power of Cryptocurrency. Good morning and welcome back to first mover. New York's financial regulator wants tougher restrictions on crypto coin listings for companies regulated in the state, especially if they target retail clients. Joining us. Now to discuss is Counsel for International law firm Smith Hadas Jacoby. Welcome to the show. Thank you. Glad to be here. All right, you previously worked for the New York State Department of Financial Services Office of the General Counsel and Enforcement. Uh What parts of this proposed guidance do you think are good for the industry? And what parts do you think? Maybe not so much? Um So I think most importantly, the department first passed guidance in this area in 2020. So, uh right now, uh there is a proposal uh which is up for public comment um to revise the 2020 guidance. Um There are a couple of new things in this proposal, but there are a couple of things that are staying the same. Um I wouldn't necessarily categorize it as um tougher uh restrictions on coin listing. Um I think the thing uh there are two parts of this, first of all, um There's the green list, um uh modifications that DFS has put in. Um And then uh second of all, there is an additional requirement for uh covered entities or entities that have um a bit license or our uh a limited purpose trust company chartered in New York um to have a policy in place for delisting uh coins. So, um I'll start with the, the green list. So the green list was put in place in 2020. Um The previous iteration of it included about 25 coins. And um those were coins that had been adopted by at least three entities that were um either uh licensed or chartered with the department, um and operating in New York and there were several other criteria of how to get on the list. Um But it was a much more robust list than this very whittled down version we saw published on Monday which uh only left us with eight coins. Um So it's, you know, we, we have our Bitcoin, we have our ether, we have a couple of stable coins, um XOs coins. Um you know, which uh DFS loves uh because um it's a New York state charter company. Um But um other than that, um I think that uh the industry has taken issue with specifically XRP. Um not being on the list and uh Dogecoin not being on the list. Um And I think that XRP not being on the list is, you know, being viewed by some in the industry as uh either a political or retaliatory move. Um which I, I think is, is wholly untrue. Uh I think that the Yeah. Oh, sorry, I just got to ask you given your experience with the nydfs. Um What do you think is going on behind the scenes? New York used to be seen as a very crypto friendly state that has kind of been withered away over the years uh because of various different uh regulatory implementations. What do you think is happening here is uh is the nydfs trying to push crypto outside of the state? Absolutely not. I think that the complete opposite is true actually. So the shift that we've seen with um Superintendent Adrian Harris, um who started uh almost exactly two years ago at DFS is a shift away from enforcement and towards um expanding the departments uh crypto group, um which is the uh research and innovation group. Um Adrian Harris has added a process, 60 staffers to the group, which is a huge deal. I mean, before we were talking about just a handful of folks um that were working in this area at DFS and now there is, you know, a veritable army dedicated to uh processing licensing applications and um really doing a little bit more hand holding with the industry. I think that um the department is very open to partnering with um uh virtual currency entities in New York. Um in order to make sure that they have what they need to proceed in terms of, um you know, especially uh some kind of security considering the volatile regulatory landscape on the federal front. I think that Adrian Harris has really been trying to fill that gap. She testified before Congress about the need for more clarity on the regulatory front at the federal. Uh and she is trying to bring that to New York as well. And one of the ways she's doing that is kind of taking a step back from the enforcement first approach, which was, uh, you know, the NYDFS is bread and butter for a long time. Um And she's looking to kind of streamline operations uh to put in the resources that the department needs in order to be able to handle uh the massive amounts of, you know, applications and filings that are coming in so that things get processed in a timely manner and more entities can get a bit license. So just to be clear, these token rules that these are for the exchanges that are registered in New York with a bit license. Is that correct? Yes, either a bit license or um, a New York State, uh uh chartered Limited Trust Company. And how many exchanges are we talking about now that are, um, that have the, um, I don't know the exact number, but it is not many. And that is, you know, extremely surprising. Um, but obviously, you know, the, the process, how can it be? It's like, you know, uh, Fox Butterfield, we, we have, we, you know, it's a Fox Butterfield headline because it, it, it's basically this whole idea that, uh, you know, what's a surprise? You, you, it's overregulated or it's regulated then and then now all of a sudden it's like, well, gee, why are there, there's nobody to regulate here? Yeah. I mean, there's also, you know, nobody else who's regulating. And I think that that's really the problem is that, um, you know, I, I represent, um, uh, crypto entities in, in my, uh, current life as a private practitioner. And what I'm hearing over and over again from those in the industry is that, uh, they want more regulation, they want more regulatory certainty. And, um, that's something that we're just not getting from the federal level. So, you know, while there is a pushback and, um, maybe some resistance to what, um, someone in the industry are viewing as New York taking a stronger stance. I think there's also some level of comfort that we can draw from the fact that there is a grown up in the room who is making some rules that we can actually comply with and know that we are doing the right thing and that, you know, we're not gonna get dinged for is, is New York. Um, any inspiration from other jurisdictions like, I mean, are you kind of looking, is New York looking around the world, for example? I mean, because you're right. I mean, New York stands out in the context of the United States where, you know, there's a lot of murkiness and confusion, but I'm just curious, like, when, when do you think that when New York is making some of these new rules, are they looking at Europe or Asia or other places that, you know, actually do have more regulatory clarity when it comes to crypto? Absolutely, that's another difference. I think that's been um you know, very visible in this current administration, Adrian Harris has been having conversations with regulators all over the world. Um you know, if you uh look at her feed, uh there are, you know, photos of her traveling to all kinds of wonderful places. Um And I think that she really is um you know, having those conversations in order to draw inspiration, but I think that she's also drawing inspiration from uh trends that she sees here. Like, for example, um the way that the new guidance distinguishes between um coins that are being offered to consumers, um you know, retail uh operations and coins that are being offered to industry players. Um I think that that is a distinction that wasn't present in these regulations before. And uh part of the reason that um dfs put that in is not to create a more onerous requirement for listing consumer coins. Um It's, it's actually just to en enable um you know, some kind of distinction where if you are listing a coin and it's being offered to institutional investors, you have a lot more leeway to um you know, have, have your freedom with that. Um Because those are trusted counterpart parties and you know, there are less uh consumer protection concerns. What does this all mean for New Yorkers, New York's uh retail investors, New York, institutional investors, people trading on their phones at a cafe in Piermont, for instance, not that I've done that. Uh Just what does it mean for them? Are, are they still going to be able to trade a wide array of currencies on exchanges that maybe don't operate in New York? What, what, what's the, what's the N and WW what's the man on the street uh effect here? I'm not sure if, if there uh really, you know, is any, um I think that a lot of companies have been having a hard time getting their bit licenses. Um And they've been afraid to operate in New York um because of the risk of enforcement. Uh And because of these, um you know, the broad way in which the bit uh the bit reg as we call it, the bit license regulation is drafted um where it's really kind of all encompassing. Um I think that uh the effect if any is going to be that uh the New York regulatory framework is gonna be open to more exchanges, it's gonna be open to more small players. It's just more startups um that are going to be able to know that um it's not, you know, an an insurmountable barrier to get your bid license. This is uh something that can happen. And you know, in the meantime, there's now a provisional framework for operating while your application is funding. Um There are all kinds of resources that uh DFS has put in place over the past two years that just weren't present there historically. Um So I think that, you know, uh this view of New York as a place where uh crypto goes to die is, is on the outs. Had. Thank you so much for joining us this morning and providing some insight into the regulatory realm in New York. Thank you. Wonderful day. That was Reed Smith Counsel, Hadas Jacoby.

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