New York financial watchdog issues stablecoin guidelines, calling for reserve requirements – Reuters

On Wednesday, the New York State Department of Finance released new rules for licensed cryptocurrency businesses that issue stablecoins, calling for mandatory reserves and monthly independent audits.

Guidelines for current BitLicense holders, the business license for virtual currency companies operating in New York State, or limited purpose charter trust holders who issue supported stablecoins in fiat currency.

The agency says it expects stablecoins to be fully backed by a pool of assets and redeemed by investors. It also sets out the requirements for reserves, including the various assets that must be included in the reserves and a specification that they must be “separate from the issuing entity’s own assets”. Issuers must also submit monthly audits to an independent accountant.

Regulators have focused on stablecoins in recent months due to the lack of transparency around the trading of these virtual assets and the reserves that support them, as well as market participants ’reliance on them to enable trading in other cryptographic protocols.

The meteoric rise in Terra Network’s dollar-pegged stablecoin, TerraUSD, followed by a rapid collapse that resulted in a $ 60 billion loss to investors, has also sharpened the attention of space regulators.

TerraUSD is different from the stablecoin mentioned in the New York regulators guide on Wednesday – it’s a decentralized algorithmic stablecoin rather than being run by an entity and backed by fiat currency – but the saga raises the profile of these cryptographic assets and damaged the reputation of the industry.

“We have now made it transparent and clear to the market that these are the expectations for our stablecoin issuers at all levels,” said Adrienne Harris, Superintendent of the New York State Department of Financial Services at “Crypto World. ” CNBC. [Watch CNBC’s interview with Harris at 3 p.m. ET on Crypto World.]

“DFS has been regulating space for a long time, but it’s a fast, fast-moving space … so we need to be a vigilant regulator to make sure we keep innovation in this space, “he said.

The Strongest Regulator in New York

Adrienne Harris, Superintendent of the New York State Department of Financial Services (DFS), spoke during an interview in New York, US, Wednesday, May 25, 2022.

Christopher Goodney | Bloomberg | Getty Photos

DFS, which regulates all financial services and products in New York, created BitLicense in 2015 to regulate crypto businesses.

Harris said the stablecoin guidelines build on VOLT, an innovation initiative he has launched to address delays in regulatory processes for agency-run virtual currency businesses. VOLT stands for Vision, Operations, Leadership and Technology, and the initiative includes a series of steps to address each of these.

The superintendent said he is committed to making the agency’s systems and processes more streamlined as the crypto industry grows. These include upgrading regulator technology, using blockchain analytics, and hiring talent at a fast pace.

“Bringing in this talent will help us expedite the licensing process without sacrificing the regulatory integrity it requires, and then help us continue to advance in the space as it continues to operate.” according to Harris.

However, in just six months of Harris ’job, many are wondering if New York will accept the crypto industry. New York City Mayor Eric Adams announced plans to making the city a crypto hub.

Critics from the New York financial regulator also point out that the state risks losing talent to other tech hubs like Miami or Austin or states with crypto-forward regulatory initiatives like Wyoming. However, Harris said the demand for BitLicenses has not diminished, and he noted that the agency has already issued three licenses this year.

“Half of venture capital investments in the cryptocurrency space by 2021 will be in New York-based, regulated companies,” Harris said. “That’s why we see that there are clear rules of conduct, strong regulations attracting business and attracting talent to New York. And that’s our job, to make sure we have the protections and we want to the talents and those companies are here under this rubric. »

There are 22 BitLicenses to date, the agency has confirmed. Some BitLicenses are discontinued over time and are no longer effective. DFS also issues 9 limited use trust charters for crypto companies.

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