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New York regulator says banks need pre-approval to engage in new crypto activities

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(Kitco News) -  The New York State Department of Financial Services (DFS) has issued new guidance to banks operating in the state informing them that it requires advance notice before they make any moves to get involved with digital assets.

The new guidance, which was released on Thursday, was issued to all New York banking organizations and all branches and agencies of foreign banking organizations licensed by the Department.

“This 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 letter said.

The document went on to describe the process all covered institutions should follow to gain prior approval for any proposed virtual currency-related activities and summarized the types of information the DFS considers relevant for the assessment of a proposal.

Areas covered in the 11-page document included a more detailed description of what prior approval is, the information requirements, the need for a comprehensive business plan to be included in any application, a thorough description of the entities risk management framework, corporate governance and oversight, how they will ensure consumer protections, the expected impact on the company’s financials, and a thorough legal and regulatory analysis.

Pre-approval for any proposed business is required 90 days before engaging in activities, the document said. It also made sure to emphasize that approval for prior activities “does not constitute general consent” for other activities, and some activities by third-party service providers may require the agency’s approval as well.

Institutions already engaged in virtual currency services were instructed to check in with their points of contact at the agency in order to find out how the new guidance affects their current operations.

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“It is critical that regulators communicate in a timely, transparent manner about the evolution of our regulatory approach,” said DFS Superintendent Adrienne A. Harris. “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.”

“This Guidance is in effect as of its release date and applies to all Covered Institutions for all virtual currency-related activities undertaken as of that release date or to be undertaken going forward,” the DFS said.

New York has been one of the most active states when it comes to regulating the cryptocurrency industry. It was one of the first to offer a license for digital currency activities with its ‘BitLicense’ in 2014 and the Federal Reserve Bank of New York is currently taking part in a 12-week trial program exploring the feasibility of a digital dollar.

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