On September 17, the New York Department of Financial Services (NYDFS) issued a notice advising all state-chartered banks, credit unions, and foreign bank branches licensed in New York to consider integrating blockchain analytics into their compliance and risk frameworks when engaging in virtual currency-related activity. The notice builds on the Department's 2022 blockchain analytics guidance for virtual currency licensees and its prior requirement that banks seek approval before launching new or significantly different virtual currency activities.
NYDFS explained that blockchain analytics, long expected of virtual currency firms, can provide banking organizations with actionable intelligence to manage risks associated with money laundering, terrorist financing, sanctions evasion, and other illicit conduct. The Department also stressed that banks should regularly reassess their risk-management frameworks, emphasizing that blockchain analytics tools can help safeguard the broader financial system as virtual currency adoption accelerates.
The notice outlined several examples of how blockchain analytics may be applied, including:
- Screening customer wallets. Banks should review wallet addresses linked to customers with crypto activity to evaluate risk exposure.
- Verifying incoming funds. Analytics tools can confirm the origin of funds, including flows from virtual asset service providers.
- Monitoring systemic exposure. Institutions should assess customer relationships for links to money laundering, sanctions violations, or other predicate crimes.
- Evaluating counterparties. Blockchain analytics can help determine the risk profile of third parties engaging with bank customers.
- Comparing expected to actual activity. Banks are expected to review whether customer activity aligns with disclosed thresholds and intended purposes.
- Incorporating analytics into risk assessments. Data gained from blockchain monitoring should feed back into overall compliance frameworks and risk appetites.
- Assessing new product launches. Analytics should be considered in evaluating whether to offer new virtual currency products or services.
Putting It Into Practice: By extending blockchain analytics expectations to supervised banks, NYDFS is reinforcing its role as a leader in virtual currency oversight. Banking organizations should evaluate whether their current monitoring tools, customer due diligence procedures, and product-approval frameworks sufficiently account for blockchain-based risks. As regulators increasingly align expectations across institution types, other states may follow New York's lead, and institutions should prepare for multi-jurisdictional oversight.
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