New York Regulator Issues Listing/Delisting Guidelines

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  • The New York State Department of Financial Services (DFS) has recently released updated guidelines for digital currency exchanges
  • The guidelines implement heightened standards for business models, risk assessments, and advance notifications.
  • The regulations, proposed two months ago by the DFS, aim to enhance customer protection in coin listings and delistings

The New York State Department of Financial Services (DFS) this week issued updated guidance on exchanges listing and delisting digital currencies. The guidance outlines heightened standards, covering areas such as business model considerations, risk assessment expectations, advance notification requirements, and clearer definitions, and comes two months after DFS first mooted such regulations. The purpose of the regulations is to increase customer protection over coin listings and delistings and comes after consultation with various parties.

DFS Highlights Three Key Areas

DFS’ plan was first outlined in September where it revealed that a new framework would be put in place to focus on three key areas: governance for the coin listing process, risk assessments of coins, and procedures to monitor coins.

Under the proposal, virtual currency companies registered in New York must submit their coin listing and delisting policies and would require firms to outline how they decide to delist a coin, including events triggering removal and execution plans.

The final plan outlines the key areas in more detail:

  • Business Model Considerations: The guidance emphasizes risk-based considerations, enhancing protections for retail consumers by making virtual currencies with specific characteristics impermissible for self-certification.
  • Risk Assessment Expectations: More clarity in risk assessment expectations will reduce regulatory uncertainty, maintaining high standards while tailoring assessments to a VC Entity’s specific virtual currency business activities.
  • Advance Notification Requirements: Acknowledging challenges in advance notification for coin delistings, the guidance provides limited exceptions based on complex circumstances.

VC Entities Face Intense Information Gathering

The new rules require VC entities to provide information on other issues including governance requirements, risk assessments covering technical design, operational, cybersecurity, market, illicit finance, legal, reputational, and regulatory risks. Additionally, it introduces monitoring expectations and criteria for coin delistings, emphasizing governance, the delisting process, and execution with a focus on customer protection and communication.

The regulatory framework is supposed to ensure safety, soundness, and customer protection while reflecting the evolving nature of the cryptocurrency market, with DFS making it known that it liaised with various crypto and non-crypto entities when coming up with the new rules.