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New York State Department of Financial Services Proposes Guidance on Adoption or Listing of Virtual Currencies by Exchanges

In the summer of 2015, the New York State Department of Financial Services (DFS) finalized its regulatory framework for virtual currency firms seeking to conduct certain virtual currency (VC) business activities in the state. Since then, it has issued two dozen licenses and charters involving virtual currency transmission (VC licenses). To promote efficiency and reflect the growing marketplace, DFS has now issued two proposals. The first proposal would list all current virtual currencies (coins)1  permitted for business activities of the VC licensees, without prior approval by DFS. The list would be updated if the coins listed have not been subject to modifications, divisions, or change after their listing on the DFS webpage. The second proposal involves a coin-listing framework that would be tailored to the specific VC licensee’s business model and risk profile to create a firm-specific coin listing or adoption policy. The VC licensee’s policy would need DFS approval prior to use. However, the proposal enables the licensee to self-certify a listing or adoption of new coins, in addition to those that may be listed on the DFS webpage, without DFS approval.2

DFS’ proposal for VC licensee coin-listing policies requires a VC licensee to provide written notice to the DFS, including the creation of procedures that comprehensively address all steps in the review and approval of all virtual currencies regarding the business activities of the licensee. Noteworthy is that with this proposal, if approved, only prior written notice to the DFS would be required, and not prior DFS approval. At a minimum, a VC licensee must have a framework for coin approval which includes:

1. Governance

—a board of directors or internal committee which approves the coin listing policy and reviews each new coin

—conflicts of interests must be considered and addressed

—minutes and records must be kept for each new coin application

2. Risk assessment

—address creation, issuance, usage, and design of any new coin

—consider operational, market, legal, and regulatory risk

3. Monitoring

—periodically reevaluate each coin

—employ control measures and process for de-listing coins

Under the two proposals, DFS retains the right to object to the adoption or listing of any self-certified coin before and after the listing goes into effect and may require the coin be delisted.

Comments are due by Jan. 27, 2020

1 Coins currently contemplated for the list include Bitcoin, Bitcoin Cash, Ether, Ether Classic, Litecoin, Ripple, Paxos, Paxos Standard, and Gemini Dollar.

2 The licensee will be able to self-certify to DFS that its proposed adoption or listing of new coins comply with the requirements of its DFS-approved company coin-listing policy and provide written notice of its intent to offer and use such new coins. VC licensees without DFS-approved company coin-listing policies must seek DFS prior approval with respect to any coin other than the DFS-approved list.

©2020 Greenberg Traurig, LLP. All rights reserved.


About this Author

William B. Mack, Greenberg Traurig Law Firm, New York, Finance Law Attorney

William B. Mack is part of the firm’s government affairs and financial regulatory and compliance groups. He is experienced in advising companies on regulatory and compliance matters relating to the Securities and Exchange Commission regulations, the Exchange Act, Anti-Money Laundering laws and Financial Industry Regulatory Authority (FINRA) rules.

William’s practice involves all aspects of broker-dealer regulation, including Self-Regulatory Organization (SRO) membership, supervision, employment, research, soft dollar arrangements, chaperoning of...

Barbara Jones, Greenberg Traurig Law Firm, Los Angeles, Private Equity, Corporate and Energy Law Attorney

Barbara A. Jones is a member of the firm’s Global Securities practice group and co-chairs the firm's Blockchain Task Force. She is also co-coordinator of the firm’s interdisciplinary Conflict Minerals Compliance Initiative. Barbara maintains a diverse corporate and securities law practice across industry groups, emphasizing complex international and domestic transactions, including blockchain/cryptocurrency transactions, private and public financings (including ICOs), dual listings, mergers and acquisitions, strategic collaborations and joint ventures, and licensing transactions. Her practice includes serving as a trusted advisor to public and private company boards of directors on governance and complex regulatory reporting and compliance issues. Barbara's clients include financial institutions, private equity and venture capital groups, and companies in blockchain, life sciences and biotechnology, information technology, energy (traditional and renewable), mining, defense and security, telecommunications, media, entertainment and sports. Barbara is also active in the representation of Olympic athletes and sports-related organizations.

Barbara practiced U.S. law in London from 1990 through 2003, and headed the international capital markets practice of a major U.S. law firm from 1999 to 2003 before relocating to Boston. From 1997 to 1999, she served as Vice-President, Assistant General Counsel and Regional Counsel for capital markets with J.P. Morgan Securities Ltd. in Europe, the Middle East and Africa. Since returning to the U.S., she has continued to actively represent public and private companies, private equity groups and investment banks in the European, Scandinavian, African and greater Asian markets, including China.

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Having worked in New York City government in various capacities, India Sneed has an intimate understanding of how to navigate the complexities of local government. India focuses her practice on administrative law and government affairs, as well as economic development and financing initiatives before government agencies.

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