New York State Department of Financial Services
The New York State Department of Financial Services was created in 2011 to reform the regulation of financial services in New York to keep pace with the rapid evolution of the industry, to guard against financial crises and to protect consumers and markets from fraud. It was created by transferring the functions of the New York State Banking Department and the New York State Insurance Department into a new department. The transfer of functions became official on October 3, 2011.
The DFS supervises and regulates the activities of more than 1,400 insurance companies with assets of more than $4.3 trillion and approximately 1,500 banking and other financial institutions with assets totaling more than $2.6 trillion. They include nearly 200 life insurance companies, 1,100 property/casualty insurance companies, about 100 health insurers and managed care organizations, and 300,000 individual insurance licensees, 90 state-chartered banks, 81 foreign branches, 10 foreign agencies, 16 credit unions, 380 licensed financial services companies, and more than 7,600 mortgage loan originators and servicers.
Founding DFS superintendent Benjamin Lawsky was replaced by Linda Lacewell on June 20, 2019.
The NYDFS is responsible for some of the most direct attempts by a U.S. regulator to regulate digital assets and blockchain trading firms. One example of this is the BitLicense, which was created by the NYDFS. On June 24, 2015, the Department published a set of rules for running a business involving or related to the production or sale of "Virtual Currencies."
These guidelines cover a wide range of activities, including the transmission of cryptocurrency, holding cryptocurrency for others, buying and selling cryptocurrency as a customer business, providing exchange services to customers, and issuing cryptocurrency. New York State-chartered banks are excepted from the rules if they have previously received specific appropriate permission from the Department of Financial Services to engage in cryptocurrency business activities. Exempted also are persons simply making or receiving payments in cryptocurrencies, participants in customer affinity programs that award tokens, and software providers which do not handle or hold cryptocurrencies for customers.
Any entity or individual who wants to conduct a cryptocurrency business in New York must apply to the Department of Financial Services and provide extensive information about its own business and that of its affiliates, as well as detailed biographical information about all key people, along with an independent investigatory report, financial statements, banking details, copies of written policies and procedures. As of July 24, 2019 sixteen firms had been approved as BitLicensees: Circle, XRP II, Coinbase, Bitflyer, Paxos, Xapo, Square, Inc., BitPay, Coinsource, Robinhood, Moon Inc., LibertyX, Bitstamp, two subsidiaries of SeedCX, and Genesis Global Trading.
As New York State-chartered trust companies, Gemini and itBit do not have BitLicenses. They have received specific authorizations from the NYDFS to operate their cryptocurrency exchanges in accordance with their trust charters.
On July 23, 2019, the Department's newly-appointed superintendent, Linda Lacewell, announced that the Research and Innovation Division of the NYDFS will track emerging financial technologies and "be responsible for licensing and supervising virtual currencies." The NYDFS also said in a follow-up statement to Coindesk that the division "will oversee the virtual currency licensing process and will encourage development in the area."
In October 2019, the NYDFS posted a job listing for a deputy superintendent with a “special” focus on blockchain and cryptocurrencies.
In December 2019, the NYDFS released a press release in which it proposed two changes for companies seeking to list their digital assets in New York. According to the announcement, the proposed changes were designed to "enhance efficiency and enable VC licensees to offer and use new coins in a timely fashion." The first aspect of the proposal was the creation of a website run by the NYDFS that lists all coins permitted by the agency; the second part of was a framework for the creation of company coin-listing policies "that can be tailored to a VC licensee's specific business model and risk profile." The press release also said that the NYDFS would be seeking public feedback about the proposal.
In January 2020 Governor Andrew Cuomo published a 321-page list of proposals for 2020. Included in the document was a section entitled, "Proposal. Protecting New York Consumers from Unfair and Abusive Practices by Strengthening New York’s Consumer Protection Laws." In the subsection "Closing Loopholes and Creating a Level Playing Field for Regulated Entities," the document called for changes to current laws that prevent virtual currency companies that are not regulated by the NYDFS from having to pay the state fees to cover the costs of examination and oversight.
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