The New York State Department of Financial Services ("DFS") announced guidance for virtual currency entities licensed by New York State, including those that hold money transmitter licenses. DFS reminded these companies to implement measures to detect, prevent and respond to fraud and other wrongdoing. The guidance also emphasizes that companies should be "especially vigilant" against efforts to manipulate the price of a virtual currency.
The guidance calls for, at a minimum, the implementation of a written policy that (1) identifies and assesses the full range of fraud-related risk areas, including, as applicable, market manipulation; (2) provides effective procedures and controls to protect against identified risks; (3) allocates responsibility for monitoring risks; and (4) provides for the periodic evaluation and revision of procedures, controls and monitoring mechanisms to ensure ongoing effectiveness, including continued compliance with all applicable laws and regulations.
The guidance also reminds virtual currency entities that, immediately upon discovery of any fraud or wrongdoing, they must submit a report to notify DFS of all pertinent details known at the time, and include any material developments relating to the event. Required reports are to be submitted to DFS via email at vcreports@dfs.ny.gov. DFS added that in such an event, companies are required to submit statements detailing actions taken, as well as any corrective operational measures to prevent the repetition of similar events.
Commentary
Similar to other compliance regimes, the DFS guidance advocates against a "one-size-fits-all" policy in favor of a customized anti-fraud program designed to address the specific risks faced by different types of virtual currency companies. In addition, the guidance calls for attributes that would be considered compliance best practices, including written policies and procedures, the immediate investigation of fraud or wrongdoing, and the documentation of any remediation steps taken to prevent future issues. Legal and compliance professionals in the virtual currency industry should familiarize themselves with the new guidance and take immediate steps to conform, particularly since this high-growth area is bound to come under high scrutiny going forward.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
