ALBANY, N.Y.—The New York State Department of Financial Services (DFS) has established new cryptocurrency fraud guidelines.
The guidance, announced by Financial Services Superintendent Maria T. Vullo, covers all virtual currency entities licensed by New York State, including those that hold a money transmitter license. They are now required to implement measures designed to effectively detect, prevent, and respond to fraud, attempted fraud, and similar wrongdoing, Finextra.com reported.
In addition, DFS reminded virtual currency companies that they must be especially vigilant against efforts at market manipulation.
“DFS took the lead in 2015 in regulating the virtual currency market, and we continue to be vigilant concerning risks in these markets. Market manipulation presents serious risks, both to consumers and to the safety and soundness of financial services institutions,” said Vullo. “As the cryptocurrency markets continue to evolve, DFS is directing virtual currency companies to take the necessary steps to guard against fraud, and to be extra vigilant about manipulation. By these actions, the market can evolve with strong regulatory supervision.”
In the guidance issued, Finextra.com explained, the DFS directed virtual currency entities to adopt measures that include, at a minimum, effective implementation of a written policy that:
- Identifies and assesses the full range of fraud-related and similar risk areas, including, as applicable, market manipulation
- Provides effective procedures and controls to protect against identified risks
- locates responsibility for monitoring risks
As part of its procedures and controls to protect against identified risks, virtual currency entity must provide for the effective investigation of fraud and other wrongdoing, whether suspected or actual, including, as applicable, market manipulation, Finextra.com noted. In addition, immediately upon discovering any wrongdoing, a virtual currency entity must submit to DFS a report stating all pertinent details known at the time of the report. Virtual currency entities must also submit to DFS, as soon as practicable, a further report or reports of any material developments relating to the originally reported events, along with:
- A statement of the actions taken or proposed to be taken with respect to such developments
- A statement of changes, if any, in the virtual currency entity’s operations that have been put in place or are planned in order to avoid repetition of similar events
DFS has approved six firms for virtual currency charters or licenses, while denying those applications that did not meet DFS’s standards, Finextra.com reported.