The New York Department of Financial Services (NYDFS) has announced enhancements to its ability to detect illegal virtual currency activity among the entities it regulates. The new capabilities are part of its efforts to keep pace with the industry and proactively respond to the virtual currency market, it has stated.
On February 21, the NYDFS released a brief statement about its new capabilities that did not contain concrete details about the “New risk control tools for the use of privileged information and market manipulation”. However, the statement promised:
“The new enhancements will provide the Department with additional capabilities to detect potential insider trading, market manipulation, and front-running activities associated with exposure or potential exposure of Department-regulated entities and applicants to wallet addresses of publicly traded virtual currencies.
NYDFS Superintendent, Adrienne Harris, has declared: “These tools will help us combat financial crime and fraud, hold regulated entities to account, and further strengthen our national leadership in oversight of virtual currencies.”
Announcements of unspecified new technological capabilities seem to be part of the NYDFS playbook. Last year, the agency announced the “accelerated acquisition of additional blockchain analytics technology” as part of its enforcement of sanctions against Russian companies following the invasion of Ukraine.
#ICYMI: DFS Superintendent Adrienne A. Harris Strengthens Department’s Ability to Detect Fraud in the Virtual Currency Industry. pic.twitter.com/BMvJnNBCVp
— NYDFS (@NYDFS) February 21, 2023
The agency also regularly publishes guidelines for the entities it regulates, advising banks on participating in the cryptocurrency market in december and claiming to be the first regulator to publish guidelines for stablecoin issuance in June.
The NYDFS recently played a key role on Blockchain infrastructure platform Paxos Trust’s decision to stop minting the stablecoin, Binance USD (BUSD), after it opened an investigation into the coin. Earlier this year, he extracted a $100 million deal from Coinbase for allegedly maintaining a backlog of 100,000 suspicious transaction alerts. ANDn August 2022, he reached an agreement with Robinhood Crypto for a USD 30 million fine for compliance problems with anti-money laundering regulations.
Furthermore, according to several news reports, the NYDFS would be investigating Gemini’s Earn Loan program.
The state of New York introduced its BitLicense for companies that handle virtual currencies in 2015, well known for its strict requirements to obtain it. This licensing regime has been controversial, and even the mayor of New York, Eric Adams criticized it for being “suffocating”.
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