Enter to open, tab to navigate, enter to select
NYDFS Issues Regulatory Guidance on Issuance of USD-Backed Stablecoins
Practical Law Legal Update w-035-8800 (Approx. 5 pages)
NYDFS Issues Regulatory Guidance on Issuance of USD-Backed Stablecoins
by Practical Law Finance
| Published on 13 Jun 2022 • USA (National/Federal) |
The New York Department of Financial Services (NYDFS) issued regulatory guidance setting the baseline criteria for US dollar (USD)-backed stablecoins issued under NYDFS oversight.
On June 8, 2022, the New York Department of Financial Services (NYDFS) issued regulatory guidance to 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, NY BNK § 102-A (2015), setting the baseline criteria for US dollar (USD)-backed stablecoins. The guidance does not apply to USD-backed stablecoins listed, but not issued, by NYDFS-regulated entities.
According to the NYDFS Greenlisted Coins/Tokens list, updated June 3, 2022, and the Regulated Entities list, updated on June 10, 2022, there are four stablecoins, issued by three limited purpose trust companies, which are currently subject to this guidance:
- Pax Dollar (USDP) and Binance USD (BUSD), issued by Paxos Trust Company.
- Gemini Dollar (GUSD), issued by Gemini Trust Company.
- Zytara Dollar (ZUSD), issued by GMO-Z Trust Company.
The guidance focuses on three primary criteria for NYDFS-approved stablecoins:
- The redeemability of USD-backed stablecoins.
- The asset reserves that back such stablecoins.
- Attestations concerning the backing by these reserves.
Redeemability. The stablecoins must be backed by an assets with a market value equal to the value of the outstanding number of units of the stablecoin, and the stablecoin issuer must adopt NYDFS approved policies that allow the holder of the stablecoin a right to redeem units in timely fashion at par value.
- The redemption is considered completed when the stablecoin issuer has fully processed and initiated the outgoing transfer of funds to the stablecoin holder's financial institution.
- Timely redemption is defined as a redemption that occurs no more than two business days after the redemption order is received.
- An exception to the requirement of timely redemption exists where NYDFS determines that such a redemption would jeopardize the asset-backing requirement or the orderly liquidation of reserve assets.
Reserve requirements. The reserve assets must:
- Be segregated from the proprietary assets of the issuing entity.
- Consist of:
- US treasury bills;
- collateralized reverse repurchase agreements (repos);
- government money market funds; or
- deposit accounts at US depository institutions (state or federal).
- Have sufficient liquidity.
- Be managed to reduce the risk of a run on the asset.
Attestations. Management's assertions regarding the reserve assets backing the stablecoin must be subject to examination at least once a month by an independent certified public accountant (CPA). The guidance provides that the attestation must address the following as of the last business day of the period covered by the attestation and as of a randomly selected business day within the review period:
- The end-of-day market value of the reserve, both in aggregate and broken down by asset class.
- The end-of-day quantity of outstanding stablecoin units.
- Whether the reserve was sufficient to fully back all outstanding stablecoin units, including reconciling items.
- Whether all NYDFS-imposed conditions on the reserve assets have been met.
The compliance deadline for the guidance is September 8, 2022.
For additional information on the NYDFS regulatory framework for VC, see Practice Notes, NYDFS Virtual Currency BitLicense Framework: Overview and Virtual Currency Business Regulation (NY State).