NY financial regulator upgrades monitoring tools against crypto fraud

Rick Steves

“These tools will help us combat financial crime and fraud, hold regulated entities accountable, and further strengthen our national leadership in virtual currency supervision.”

New York State Department Of Financial Services has strengthened its ability to detect fraud in the virtual currency industry by building on previous guidance on preventing wrongful activity.

Its enhanced ability to identify insider trading and market manipulation in New York State-regulated companies engaged in virtual currency activity comes at a time when the crypto industry remains under pressure after the collapse of big names such as Celsius Network, Terra/LUNA, and FTX.

“Tools will help us combat financial crime and fraud”

The New York regulator has stepped up its capabilities with new insider trading and market manipulation risk monitoring tools. The NYDFS will leverage the technology to detect potential insider trading, market manipulation, and front-running activity associated with Department-regulated entities’ and applicants’ exposure or potential exposure to listed virtual currency wallet addresses.

New York State Department Of Financial Services Superintendent Adrienne A. Harris commented: “This is a significant step in our supervision of the virtual currency industry as it continues to quickly transform and mature. These tools will help us combat financial crime and fraud, hold regulated entities accountable, and further strengthen our national leadership in virtual currency supervision.”

The announcement builds upon recently issued Guidance regarding the use of blockchain analytics, criteria for USD-backed stablecoins, and new guidance regarding virtual currency insolvency or similar proceeding.

The guidance applies to those entities the Department has licensed or chartered to custody, or temporarily hold, store, or maintain virtual currency assets on behalf of their customers.

As stewards of others’ assets, virtual currency entities that act as custodians, including without limitation, storing, holding, or maintaining custody or control of virtual currency on behalf of others, must have robust processes in place, akin to traditional financial service providers.

New York’s virtual currency regulation requires entities to, among other things:

  • hold virtual currency in a manner that protects customer assets;
  • maintain comprehensive books and records; properly disclose the material terms and conditions associated with their products and services, including custody services;
  • and refrain from making any false, misleading or deceptive representations or omissions in their marketing materials.

Entities operating under the BitLicense and Limited Purpose Trust Charter are held to these requirements through DFS supervision and examinations, or when need be, enforcement actions.

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