- Stablecoins traded in the New York State should be fully backed by certain assets, which should be kept separate from the issuers’ operational funds and audited on a regular basis.
- The New York Department of Financial Services issued its first stablecoin-specific guidance on Wednesday, laying out a set of criteria that any issuer doing business in the state must follow.
- The goal of the guidelines is to formalize consumer protection as well as institutional soundness.
Weeks after the shocking breakdown of TerraUSD, New York’s leading financial regulator has approved new guidelines for stablecoins.
The state’s Department of Financial Services, which has long been a pioneer in crypto regulations, announced on Wednesday that it is the first in the United States to establish thorough stablecoin benchmarks, an asset class that has piqued the interest of regulators around the world.
Stablecoins, according to the agency, will be fully backed by a reserve of assets and refundable by investors. It also specified the types of assets that should be included in the reserves, as well as the requisite that they be “differentiated from the issuing entity’s proprietary assets.” Issuers should also submit to independent certified public accountant audits on a monthly basis.
In a public statement, DFS Superintendent Adrienne Harris said, “By leveraging our years of experience in the space, our regulatory assistance today creates strict definitions for virtual currency companies looking to issue [US dollar]-backed stablecoins in New York.”
Nonetheless, the Terra ecosystem’s demise has obviously speeded up endeavours to regulate stablecoins in general. DFS has been “in direct contact with New York State-regulated virtual currency entities.”
Sen. Kirsten Gillibrand said on Wednesday that the collapse of the TerraUSD “absolutely” influenced the approach she and Sen. Cynthia Lummis took to stablecoins in their crypto regulation bill.
Since 2018, the department has been licensing dollar-backed stablecoins and establishing minimal level disclosure requirements. According to the state DFS, the guidance released on Wednesday provides more detailed standards.
On CNBC’s “Crypto World,” Adrienne Harris, superintendent of the New York State Department of Financial Services, said, “We’re now making it transparent and making clear to the marketplace that these are expectations for our stablecoin issuers across the board.”
The instruction also outlined the types of assets that can be used to back stablecoins, including short-term US Treasury bills and deposits in state and federally chartered accounts. Reverse repurchase contracts completely collateralized by U.S. Treasury bills, notes, or bonds on an overnight basis, subject to regulator approval, can also be used to back the coins.
An independent accountant must audit the reserves once a month, and the results must be made public within 30 days.
The Department of Financial Services (DFS), which oversees all financial services and products in New York, established the BitLicense in 2015 to regulate cryptocurrency businesses.
Proponents of the New York financial regulator have also pointed out that the state fears losing skill sets to other tech hubs such as Miami or Austin, Texas, or states like Wyoming that have crypto-forward regulatory initiatives. However, Harris stated that demand for BitLicenses has remained strong, noting that the agency has already issued three licences this year.
“In the cryptocurrency space in 2021, half of venture capital investment was in New York-based and regulated companies,” Harris said. “So we see that in New York, providing clear rules of the road and stringent regulation draws companies and talent.” And it is our responsibility to ensure that those safeguards are in place and that we want that talent and those businesses to be here under that umbrella.”