New rules say that NY banks have to seek NYDFS’ approval before working with crypto

The rate of cryptocurrency adoption in the United States is seeing a sharp rise, to the point where even the banks from states like New York, which have a strict stance on crypto, have been trying to enter the industry. This led the local New York regulator, the New York Department of Financial Services (NYDFS) to come up with new rules for crypto-curious financial institutions.

The newly published guidance states that all banking companies in New York are obligated to seek advance permission from the regulator before they engage in any crypto-related activities. The same rule also includes and authorized third-party agents that the banks might be collaborating with. Other than that, the rule extends to all agencies, branches, and foreign banking companies and organizations that operate in the state.

The Department requested that all organizations that fit the description need to provide information regarding their risk management, business plan, corporate governance and oversight, financials, consumer protection, regulatory and legal analysis, and more, in their permission-seeking proposals.

The current state of the crypto industry makes it riskier than ever

Of course, some companies in the state of New York are already involved with crypto. The regulator kept them in mind, as well, stating that all firms that are already connected to the industry and are working with digital assets need to inform the NYDFS of all such activities immediately.

Once they do, the regulator will then request further information to be delivered, depending on what it believes is necessary. It will also provide supervisory conditions if it deems it necessary.

While it seems like adoption is continuing to surge despite the current conditions in the crypto industry, there is no denying that the digital asset sector is going through a difficult period. Cryptocurrency is in the middle of a battle with the collapse and bankruptcy of numerous crypto exchanges, while some of them have already lost this battle.

The prime example is FTX, a Bahamas-based crypto exchange that used to be one of the industry’s finest, and rival of Binance itself. Led by Sam Bankman-Fried, the platform filed for bankruptcy on November 11th, 2022. Since then, investigations have uncovered mishandling of customers’ funds from the platform’s officials, hence the arrest of the platform’s now-former CEO, who is currently facing criminal charges in the US.

The collapse of the once-beloved platform has made huge shockwaves throughout the industry, similarly to what happened after the collapse of the Terra blockchain in May of this year. This is the chaotic crypto industry in which the new guidance had emerged, and the NYDFS’ Superintendent, Adrienne Harris, stressed that the rules are critical for the protection of consumers’ funds.

At the same time, the rules are expected to keep the banking firms in New York as resilient and as competitive as possible. Harris said that the Department takes all potential risks seriously, especially when it comes to activities that are brand new to many of New York’s banks. Due to their lack of experience with crypto, they could endanger not only the consumers but even the market itself. As a result, the regulator seeks to analyze any planned crypto activity within the provided circumstances and accompanied by other offered facts, to determine whether such actions are appropriate to undertake.