With a pair of new leaders overseeing its regulation of cryptocurrency, the New York Department of Financial Services is ready for its third act as one of the toughest and most-respected regulators of virtual currency in the U.S.
With her confirmation as head of the NYDFS Tuesday (Jan. 25), Adrienne Harris takes control of New York’s BitLicense, which was long seen as both the gold standard in the regulation of cryptocurrency businesses in the United States and a regime so tough many perfectly legitimate companies fled the state — and won’t do business with New Yorkers. The Kraken exchange most notable among them.
However, it also gave those that did stay, such as Coinbase and the Winklevoss twins’ Gemini exchange, substantial credibility within the traditional financial community.
The former Treasury Department and Obama White House advisor and Digital Dollar Foundation board member comes into the position at a time when the regulation of virtual currencies — the preferred legal term for cryptocurrencies, including stablecoins — has turned into a national priority.
With cryptocurrency growing into a multitrillion dollar industry that some 13% to 16% of the country has at least experimented with, segments like stablecoins and NFTs gaining broad attention from the financial industry and general public, and with banking and financial regulators maneuvering for control, congress and the White House have made it clear that national rules are coming.
A Business-Friendly Regulator
In Harris, the NYDFS is getting a regulator with a business-friendly reputation — too much of one for a number of progressive groups who protested her appointment by Gov. Kathy Hochul.
“The way we tend to regulate financial services, and most industries in the United States, is — and I always took a little bit of an issue with this — it’s sort of like the list of no-no’s,” Harris said in an interview last year at the University of Michigan’s Ross School of Business. “It’s like ‘Go forth, free market, but here [is] the list of no-no’s,’ and then when somebody finds a new no-no you’re like ‘OK, we’ll add that to the list of no-no’s.’”
A better approach, she said, is to look at the desired outcomes and ask how to work toward them.
As a former board member of the Digital Dollar Foundation advocating for a U.S.-issued central bank digital currency (CBDC), it seems likely Harris will be pushing the NYDFS into that debate.
The same applies to private stablecoins, which have become one of the most contentious and research virtual currencies, a process kicked off by Facebook’s now-defunct Libra/Diem stablecoin and most recently picked up by the November release of the President’s Working Group on Financial Markets’ stablecoin report.
A Long History
Nonetheless, the NYDFS will not only remain relevant as the regulator of the largest financial center in the world, but as the obvious yardstick against which proposed national rules are measured.
With a broader remit than agencies like the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC) and Office of the Comptroller of the Currency (OCC), the NYDFS has more expertise in the broader crypto regulation the industry and government are now seeking to create.
In that capacity, it is notable that the agency has been working on making New York a more crypto friendly state — a process that started with the overhaul of its regulations in June 2020, creating a conditional BitLicense that made running a virtual currency business in New York a far simpler process. PayPal was the first to take advantage of it when the payments company began supporting cryptocurrencies.
The BitLicense has a broad remit, covering any business transmitting, buying, or selling virtual currencies, or custodying them on behalf of others. It also covers exchanges and companies issuing new cryptocurrencies. Stablecoin issuers Paxos (USDP), Gemini (GUSD), Binance (BUSD) are among those who have taken advantage of it.
The agency also eased the process of getting new cryptocurrencies certified for listing in New York exchanges, provided more and better guidance, and allowed BitLicense holders to self-certify new virtual currencies.
In March, it held a two-week hackathon in which teams of crypto industry insiders and regulators looked at ways of improving the agencies regulatory and oversight processes. In July it announced a virtual currency industry diversity program.
More recently, the NYDFS revealed that it had finally filled the long-open position of deputy superintendent of virtual currency, hiring Peter Morton, a veteran of IBM’s Promontory Financial Group who oversaw its digital assets activities.
“Crypto supervision should be a marathon not a sprint,” Morton said in a LinkedIn post on Jan. 5. “I look forward to continu[ing] this effort in earnest.”