NYDFS: Banks must seek approval before engaging with crypto

• New York Department of Financial Services published the new guidelines on 15 December 2022.
• All banking organisations must apply for permission to undertake any crypto activities.
• The regulatory guidelines are effective immediately and come as the spotlight is firmly on crypto following FTX’s implosion.

Amid all the scrutiny on cryptocurrency exchanges after FTX’s collapse, the New York Department of Financial Services (NYDFS) has announced new guidelines targeting banks.

The NYDFS, the top financial regulator in the Empire State, said in an announcement that all banking institutions in the jurisdiction have to seek prior permission if they wish to get involved in the crypto space.

NYDFS’ new guidelines to banks

The agency specified in its 15 December letter to players within the banking industry that any involvement in virtual currency-related activities must first be addressed to authorities. Only once approved can such an entity go on to engage in the permitted initiative. 

The NYDFS said these demands apply to all New York-based banking organizations.

Also covered are all branches and agencies of foreign banks and other financial providers licensed to operate in the state. Combined, the regulator referred to the targeted entities as “Covered Institutions.”

“A Covered Institution should seek the Department’s prior approval before commencing any new or significantly different virtual currency-related activity,” the NYDFS wrote.

But even with approval to engage with crypto, banks will still need further permission to undertake new activities.

“Prior approval for a Covered Institution to engage in a virtual currency-related activity does not constitute general consent for that institution to engage in other types of virtual currency-related activity, nor does it authorize other Covered Institutions to undertake that same activity,” the letter reads in part.

Crypto in the spotlight

The NYDFS’ latest regulatory action comes amid the fallout of FTX’s implosion, a much more devastating setback to crypto in a year dictated with multiple bankruptcies and massive losses for investors. 

But the agency sees the crypto market as one that continues to evolve and innovate – part of the growth trajectory that has seen several banks seek to offer various crypto products and services.

The guidance is thus part of the thorough assessment for banks before they engage in digital assets-related activity, with the goal of ensuring safety for consumers. 

The requirements are effective immediately, the agency pointed out, and only apply on top of already existing laws and regulations.