Summary:
- New York Attorney General Letitia James is pushing to empower the State’s Department of Financial Services with the authority to implement stricter crypto rules.
- AG James’s proposed regulations would compel crypto firms to reimburse fraud victims and bar crypto asset creators from running digital asset platforms.
- The bill marks another crypto crackdown from the New York AG’s office after lawsuits against CoinEx, Kucoin, and former Celsius CEO Alex Mashinsky.
The office of the New York Attorney General is attempting to rein in the crypto industry with a bill meant to introduce stricter crypto rules and improve oversight capacity from the state’s Department of Financial Services (NYDFS).
Under the bill proposed by New York AG Letitia James, exchanges must reimburse users who fall victim to fraud. The so-called “nation-leading” crypto rules also ban developers of cryptocurrencies from operating digital asset exchanges and businesses. AG James argued that these crypto rules could mitigate conflicts of interest.
Crypto companies would also undergo independent and public auditing to strengthen trust and ensure compliance. The bill would also criminalize lending out customers’ digital assets.
We’re proposing commonsense measures to protect investors and end the fraud and dysfunction that have become the hallmarks of cryptocurrency. Banks and other financial services are regulated. The cryptocurrency industry must be too.
To achieve this, AG James’ bill would beef up regulatory authority commanded by New York’s Department of Financial Services. The NYDFS already launched a series of enforcement actions against crypto players in the State of New York.
This bill will:
– Require crypto companies to refund customers who are victims of fraud, as banks do now.
– Give my office the power to enforce these laws and shut down companies that violate them.
– Force independent and public auditing of crypto companies.
— NY AG James (@NewYorkStateAG) May 5, 2023
Crypto Rules Proposed After New York Crypto Crackdown
New York’s DFS and AG James have gone after crypto businesses for alleged regulatory violations in recent months. In a lawsuit against crypto exchange Kucoin, the regulator argued that crypto’s largest altcoin Ether (ETH) meets securities requirements and should be regulated.
AG James also sued CoinEx and Alex Mashinsky, the former CEO of Celsius. New York is one of several states cracking down on crypto businesses across the U.S. The state’s financial regulator struck at Binance-branded stablecoin BUSD and its issuer Paxos.
In Illinois, Coinbase was accused of violating Biometric privacy laws as watchdogs chase crypto entities toward off-shore jurisdictions.
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On Tuesday, New York Attorney General Letitia James unveiled plans for stricter cryptocurrency investment rules in the state of New York. The move follows a months-long investigation into the largely unregulated digital asset class, which has seen immense growth in popularity over the past few years.
The proposed regulations, dubbed the “Virtual Markets Integrity Rules”, are designed to increase regulatory oversight of cryptocurrency trading platforms, including registration, anti-money laundering, cyber security, and reporting obligations. The proposed regulations will also grant the New York Attorney General’s office greater enforcement power, including the power to issue subpoenas and even seek court orders to force reluctant parties to comply.
In a statement, Attorney General James emphasized the need for increased investor protection in the absence of a federal regulatory framework.
“While the invention of new technologies often leads to significant advancements or economic gains, they also require rigorous oversight to protect consumers and investors who may be at risk of financial harm,” James said.
The proposed regulations come at a time when cryptocurrency assets are increasingly being used as speculative assets, attracting a surge of new investors who often lack the necessary financial sophistication. To address these investor protection concerns, the Attorney General has proposed increasing consumer disclosure requirements and the implementation of new market conduct standards.
The Virtual Markets Integrity Rules are expected to be effective as of April 2022, a timeline which the Attorney General’s office believes provides sufficient time for market participants to comply with the proposed regulations. The proposed rules are currently open for public comment, and will continue to be open until February 12, 2021.
The Virtual Markets Integrity Rules represent a major step in the regulation of cryptocurrency trading platforms, and could well be a sign of the tougher measures to come from other states across the country. By cracking down on investments that lack appropriate consumer protection, Attorney General James is attempting to bring much needed oversight to the ever-growing cryptocurrency sector.
