I. Introduction

On September 18, the New York State Department of Financial Services (the DFS or the "Department") issued proposed guidance for BitLicensees and limited-purpose trust companies (collectively, VCEs) seeking to list virtual currencies on their platforms. The proposed guidance updates the Department's framework for self-certification of coins and establishes new policy requirements for coin listings and delistings (Proposed Guidance).1 Concurrently, the Department updated its list of coins that VCEs can list without the DFS's prior approval (the Greenlist) and revised the process for coins to be added to the Greenlist (the General Framework for Greenlisted Coins).2

The Proposed Guidance would require VCEs to develop and implement a coin-listing policy in compliance with heightened risk assessment standards and enhance requirements for retail consumer-facing businesses before self-certifying any coins. It also would require any VCE, regardless of whether it has a DFS-approved coin-listing policy, to establish a separate coindelisting policy to ensure safety, customer protection and regulatory compliance. As part of the updates on September 18, the DFS revised its General Framework for Greenlisted Coins and significantly pared back the number of coins on its Greenlist to Bitcoin, Ethereum, and six stablecoins issued by DFS-regulated limited purpose trust companies.

The Proposed Guidance and updates to the Greenlist fit within a larger framework of the DFS's sustained efforts to both regulate and establish a nationwide standard for the regulation of the digital asset industry.3 In the press release announcing the Proposed Guidance, Superintendent Adrienne A. Harris highlighted the significant resources the Department has invested in digital asset regulation, including the hiring of more than 60 experts to license and supervise digital asset companies in the past two years.4 The Department also underscored "milestone achievements that have transformed agency operations and shaped virtual currency policy across the nation and around the world,"5 including the issuance of eight industry regulatory guidance documents related to digital assets, such as guidance focused on USD-backed stablecoins,6 custody of customer assets7 and the use of blockchain analytics tools to manage financial crime risks.8

The Proposed Guidance signals that the DFS remains committed to being a leading regulator of virtual currency. In furtherance of this goal, we can expect the DFS to continue to carve new paths in regulation, supervision and enforcement related to digital assets. VCEs to which this Proposed Guidance would apply should review the Proposed Guidance and evaluate its impact on their existing practices and coin-listing policies, procedures and processes. VCEs should also begin creating their newly required coin-delisting policies during the public comment period.9 The Proposed Guidance, if finalized, would require VCEs to meet with the DFS to discuss their draft coin-delisting policy by December 8, 2023, and submit such policy to the DFS for approval by January 31, 2024.

The DFS is soliciting comments on the Proposed Guidance until October 20, 2023. VCEs and other industry participants should consider submitting a comment to the DFS to identify and address any potential concerns or issues.10 The DFS has stated that it will issue its final guidance following the closure of the comment period.

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1. See N.Y. Dept. Fin. Servs., Letter re: Proposed Updates to Guidance Regarding Listing of Virtual Currencies (Sept. 18, 2023), https://www.dfs.ny.gov/industry_guidance/industry_letters/il20230918_guidance_vc_listing.

2. N.Y. Dept. Fin. Servs., Letter re: General Framework for Greenlisted Coins (Sept. 18, 2023), https://www.dfs.ny.gov/industry_guidance/industry_letters/il20230918_gen_framework_greenlisted_coins.

3. Note, obligations under the federal securities laws must be viewed separately. See, e.g., Securities and Exchange Commission, Re: Proposed Coin Listing Policy Framework (Jan. 27, 2020), https://www.sec.gov/files/staff-comments-to%20nysdfs-1-27-20.pdf ("Market participants should not rely on a model framework, whitelist, or state license when evaluating compliance with the federal securities laws – without also undergoing careful legal analysis under the federal securities laws.").

4. Press Release, N.Y. Dept. Fin. Servs., "DFS Superintendent Adrienne A. Harris Announces Update on Two Year Transformational Initiative to Strengthen DFS' Nation-Leading Virtual Currency Oversight" (Sept. 18, 2023), https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202309181.

5. Id.

6. See N.Y. Dept. Fin. Servs., Letter re: Guidance on the Issuance of U.S. Dollar-Backed Stablecoins (June 8, 2022), https://www.dfs.ny.gov/industry_guidance/industry_letters/il20220608_issuance_stablecoins.

7. See N.Y. Dept. Fin. Servs., Letter re: Guidance on Custodial Structures for Customer Protection in the Event of Insolvency (Jan. 23, 2023), https://www.dfs.ny.gov/industry_guidance/industry_letters/il20230123_guidance_custodial_structures; see also Franca H. Gutierrez, Tiffany J. Smith et al., Crypto Currently: New York Department of Financial Services Issues Virtual Currency Custody Guidance (Feb. 9, 2023), https://www.wilmerhale.com/insights/client-alerts/20230208-new-york-department-of-financial-services-issues-virtual-currency-custody-guidance .

8. See N.Y. Dept. Fin. Servs., Letter re: Guidance on Use of Blockchain Analytics (Apr. 28, 2022), https://www.dfs.ny.gov/industry_guidance/industry_letters/il20220428_guidance_use_blockchain_analytics.

9. In the letter announcing the Proposed Guidance, the DFS "strongly encouraged" VCEs to begin creating their coin-delisting policies during the public comment period. See N.Y. Dept. Fin. Servs., Letter re: Proposed Updates to Guidance Regarding Listing of Virtual Currencies (Sept. 18, 2023), https://www.dfs.ny.gov/industry_guidance/industry_letters/il20230918_guidance_vc_listing.

10. Comments should be submitted to innovation@dfs.ny.gov using "Proposed Coin-Listing Policy Framework" in the subject line.

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