Crypto regulation will soon take a step forward in the Empire State, as lawmakers are weighing new rules proposed by New York Attorney General Letitia James. The goal is to make a new industry look more like Wall Street, at least in terms of how it’s managed.
The state has already earned a reputation for a strong compliance framework under the New York State Department of Financial Services (DFS), which has been regulating crypto companies under the BitLicense regime since 2015.
The legislation proposed by James would further strengthen the authority of the DFS, the Office of the New York State Attorney General (OAG) said in a press releasesets forth rules focused on conflicts of interest, transparency, and investor protections.
“The multi-billion-dollar industry lacks strong regulations,” it said, adding that the proposal would put in place “the strongest and most comprehensive set of cryptocurrency regulations in the country.”
The proposal comes amid a nationwide increase in regulatory scrutiny and follows a tumultuous year for the industry, defined by several high-profile bankruptcies and thousands of investors burned. The office cited the conduct of several companies such as defunct crypto lender Celsius and Terraform Labs as examples of prohibited behavior.
The OAG said it will submit the bill—the Crypto Regulation, Protection, Transparency, and Oversight Act, or CRPTO Act—to state lawmakers for consideration in the 2023 legislative session, which ends June 8.
The bill takes away the regulations that already exist in traditional finance, which can be seen prominently in terms of legitimizing the space of digital assets, said the General Counsel of Hashflow Rahsan Boykin. Decrypt.
“This is a positive step towards greater transparency and accountability,” he said. “The new law […] aimed at imposing the same rules on crypto companies that many participants in the security industry must follow today. “
However, Boykin notes that state-by-state regulation has the potential to be somewhat counterproductive, pushing companies out of areas with strict regulations or creating an “unlevel playing field.” for those who stayed.
And while Boykin believes that the CRPTO bill in New York is good, he added that a national regulatory structure is ultimately the best, ensuring that the industry is always regulated.
A large portion of the bill is devoted to preventing conflicts of interest. Some measures include preventing market participants from being token issuers, markets, and brokers at the same time—requiring them to stick to one role.
However, overall, it is unclear how effective the new rules will be or whether they will prevent the next crypto crash, Zeebu and Valuit’s Head of Compliance Timothy Cradle said. Decrypt.
“I love what DFS is going to do,” he said. “However, these are not new rules, and I am concerned that they will not be effective in achieving their intended goals.”
The OAG admitted in a blog post that the public disclosure requirements could deter Celsius’ customers. Deaf ear last summer, for example. Cradle confirms audited financial statements for Celsius are publicly available pre-UK crash Companies House.
Asking private companies to open their books when they don’t have to is also unsavory, Cradle said, describing it as an “ultimatum” to digital asset companies to comply or stay away.
“I support the requirement,” he said. “I don’t think it really protects consumers.”
The CRPTO bill also includes new rules regarding stablecoins, which prohibit the term from being used to describe digital assets that are not fully backed by US dollars or high-quality assets that can be easily converted into cash.
Cradle said it sounds like an interesting concept, but he doubts how effective it will be at protecting consumers, saying that smart crypto marketers could come up with a new, similar terms like “dollar coin,” for example.