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NYDFS Issues Guidance on Bank Virtual Currency Activity
Practical Law Legal Update w-037-9812 (Approx. 5 pages)
NYDFS Issues Guidance on Bank Virtual Currency Activity
by Practical Law Finance
| Published on 19 Dec 2022 • USA (National/Federal) |
The New York Department of Financial Services (NYDFS) issued guidance on its expectations for New York banking organizations and any branches and foreign banking organizations licensed by NYDFS that are engaging or planning to engage in virtual currency-related activity.
On December 15, 2022, the New York Department of Financial Services (NYDFS) issued guidance on its expectations for New York banking organizations and any branches and foreign banking organizations licensed by NYDFS (collectively, NYDFS banks) that are engaging or planning to engage in virtual currency (VC)-related activity. According to the guidance, these institutions are expected to seek approval from NYDFS before engaging in new or significantly different VC-related activity.
The guidance notes that it does not interpret existing law or regulation and does not otherwise take a position on the types of activities that may, as a legal matter, be permissible for the NYDFS banks to take. Instead, the guidance describes the process NYDFS banks should observe when seeking prior approval for a proposed VC-related activity and summarizes the types of information NYDFS considers relevant in assessing such a proposal. The guidance specifically requests that NYDFS banks take the following steps:
- Initiate the approval process by informing NYDFS of its intention to engage in any new or significantly different VC-related activity a minimum of 90 days before the institution intends to commence such activity.
- Provide NYDFS with sufficient information to assess the scope of the proposal and any impact on the institution's safety and soundness, specifically:
- a business plan that provides a comprehensive description of the institution's proposed VC-related activity;
- an account of the institution's enterprise-wide risk-management framework to identify, measure, monitor, and control all risks arising from or related to the proposed VC-related activity, including operational risk, credit risk, market risk, cybersecurity risk, and fraud risk;
- the corporate governance framework applicable to the proposed activity;
- an analysis of whether and to what extent the proposed VC-related activity will have an impact on customers and other users;
- an explanation of the expected impacts of the proposed activity on the institution's capital and liquidity; and
- a thorough account of the application of all relevant laws and regulations to the proposed activity as part of the institution's initial assessment and internal approval process for the activity, including an analysis of the permissibility of the proposed activity and key legal risks and mitigants.
According to the guidance, NYDFS prior approval to engage in a VC-related activity does not constitute general consent for that institution to engage in other types of VC-related activity or for other NYDFS licensed institutions to engage in that same activity. The guidance is effective as of December 15, 2022 and applies to all institutions for all VC-related activities undertaken as of December 15, 2022 or to be undertaken going forward.
The guidance includes a supplemental checklist of materials that may be relevant in NYDFS evaluation of a proposed VC-related activity and provides contact information for institutions seeking further clarification regarding the guidance.
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).