New York Regulators Announce Upgrade to Crypto Tracking and Compliance Suite

The New York Department of Financial Services (NYDFS) has announced a new set of upgrades designed to help improve its ability to track and curb illegal activities among the entities it regulates. 

Better Oversight of New York’s Crypto Sector

Earlier this week, the financial regulator issued a statement confirming that it had improved its ability to detect illegal activity among companies that had already registered their services with the state. Based on the explanation provided, the upgrades will help to improve its ability to keep pace with developments in the global crypto market. 

#ICYMI: DFS Superintendent Adrienne A. Harris Strengthens Department's Ability to Detect Fraud in the Virtual Currency Industry. pic.twitter.com/BMvJnNBCVp

— NYDFS (@NYDFS) February 21, 2023

The statement pointed out that these upgrades will help curb market manipulation and insider trading, allowing them to examine the wallets of regulated entities and their users. 

Adrienne Harris, the agency’s superintendent, confirmed that the agency’s goal remains to improve its ability to detect and respond to criminal activity, as well as to strengthen its oversight capability. Although the details of these upgrades have yet to become public, the NYDFS appears poised to begin using the tools at its disposal immediately. It will be interesting to see how they perform down the line.

Enforcement Kicks Into High Gear

The NYDFS has long been regarded as one of the foremost financial regulators in the cryptocurrency industry. The agency rose to prominence several years ago when it introduced the Virtual Currency License (BitLicense), which it held as a requirement for any crypto company looking to provide services in New York State. While many in the industry have objected to the license, the agency remains adamant in its belief that it is the right thing to do.

Only a small percentage of all available crypto companies have been able to operate in New York since then. Even those who do have been subjected to an increasingly stern examination as the NYDFS maintains its regulatory enforcement streak. And 2023 has been no exception.

The New York Department of Financial Services began the new year by announcing a settlement with major crypto exchange Coinbase, confirming that the latter had agreed to pay $100 million in penalties due to an investigation into its compliance practices. According to an announcement, Coinbase will pay a $50 million fine in response to state financial services and banking laws and invest $50 million in bolstering its compliance program.

As the announcement explained, the exchange had several compliance deficiencies related to anti-money laundering (AML) requirements. In addition, Coinbase had a deficient customer onboarding and transaction monitoring process. 

This month, the NYDFS also issued a statement asking the Paxos Trust Company to cease issuing its Binance USD stablecoin. Paxos had partnered with top exchange Binance on the asset, which was released back in late 2019. While BUSD had grown into one of the largest stablecoins by market cap, it recently came under fire after the Securities and Exchange Commission (SEC) issued a statement confirming its intent to sue Paxos for what it believed to be an unregistered securities offering. 

In its separate statement, the agency explained that it had ordered Paxos to immediately cease its working relationship with Binance and stop minting BUSD. The statement also added that the NYDFS would continue monitoring Paxos to ensure the company can continue processing customer redemptions subject to risk compliance protocols. 

Presently, the NYDFS is also said to be investigating Gemini’s embattled Earn program. The program, which was recently suspended due to an issue with Gemini’s custody partner, promised users consistent returns on stablecoin deposits. The regulator is now reportedly investigating claims made by Gemini regarding asset insurance with the Federal Deposit Insurance Corporation.