NYDFS Issues Guidance to Help Prevent Fraud and Manipulation in Virtual-Currency Markets | Practical Law

NYDFS Issues Guidance to Help Prevent Fraud and Manipulation in Virtual-Currency Markets | Practical Law

The New York State Department of Financial Services (NYDFS) issued guidance reminding virtual-currency entities licensed in the state of New York of their responsibilities regarding prevention of fraud and manipulation in the virtual-currency markets.

NYDFS Issues Guidance to Help Prevent Fraud and Manipulation in Virtual-Currency Markets

by Practical Law Finance
Published on 15 Feb 2018 • USA (National/Federal)
The New York State Department of Financial Services (NYDFS) issued guidance reminding virtual-currency entities licensed in the state of New York of their responsibilities regarding prevention of fraud and manipulation in the virtual-currency markets.
On February 7, 2018, the New York State Department of Financial Services (NYDFS) issued guidance reminding virtual-currency business entities that are either licensed under New York's Compilation of Codes, Rules and Regulations (23 NYCRR Part 200) or chartered as a limited purpose trust company under the New York Banking Law (collectively, virtual-currency entities) of:
  • Their obligation under New York virtual-currency rules to implement measures designed to effectively detect, prevent, and respond to fraud, attempted fraud, and similar wrongdoing (see Practice Note, Virtual Currency Regulation: Overview: New York Virtual Currency Rules).
  • The serious risks that market manipulation presents to both consumers and the safety and soundness of financial services institutions and the need to therefore be especially vigilant against efforts to manipulate the market.
The guidance applies to all virtual-currency entities, including those that also hold a New York money transmitter license, and directs virtual-currency entities to adopt measures that include, at a minimum, effective implementation of a written policy that:
  • Identifies and assesses all fraud-related and similar risk areas (including market manipulation when applicable).
  • Provides effective procedures and controls to protect against identified risks.
  • Allocates responsibility for monitoring risks.
  • Provides for the effective investigation of fraud and other wrongdoing (including market manipulation), whether suspected or actual.
The guidance further directs virtual-currency entities to immediately submit a report of all pertinent known details to the NYDFS if any wrongdoing is discovered. As soon as practicable (the NYDFS expects within 48 hours), a further report of any material developments related to the original report must be submitted along with:
  • A statement of the actions taken or proposed to be taken with respect to such developments.
  • A statement of changes, if any, to the virtual-currency entity's operations that have been put in place or are planned in order to avoid repetition of similar events.
Virtual-currency entities must maintain records of each incident of wrongdoing for examination by the NYDFS.