Cryptocurrency exchanges and entities regulated by New York state have to put a pause on certifying new coins and tokens as compliant until they submit updated policies to state regulators.
Why it matters: New York State is the heart of finance in the U.S., and it leads the way for financial regulation, including cryptocurrency regulation.
Driving the news: New guidance today told entities regulated by the New York Department of Financial Services that they can’t self-certify any new cryptocurrencies for trading until they have submitted two new policies to the regulator: one for how they list coins and tokens and also for how they delist them.
They will also need to wait for those policies to be approved.
What they’re saying: “VC Entities that had a previously approved coin-listing policy under the Prior Guidance are not permitted to self-certify any coins until they submit to and receive approval from the Department a coin-listing policy that meets the standards,” the industry letter released today says.
That list includes companies (or their subsidiaries) such as Circle, Gemini, Fidelity, Robinhood and Paypal.
How it works: The guidelines are broadly what might be expected. Exchanges and other service providers need to look at things like a token’s technology, its use cases and safety.
They also need to have a clear role to play for their governing authority (in most cases, boards of directors) in approving and occasionally reviewing the policies.
Records have to be kept in a way that the department can easily review them.
Conflicts of interest need to be guarded against.
Certain kinds of coins are forbidden.
Stablecoins are only allowed if they are on the state’s greenlist (which currently only has eight coins on it, six of which are stablecoins).
Tokens for other exchanges (such as FTX’s FTT or Binance’s BNB) are explicitly disallowed, as are any tokens that have been bridged from their native chain.
Lastly, no token is permitted if its circulating supply is less than 35% its total supply (which would have prevented listing any of the so-called “Sam coins” that Sam Bankman-Fried spun up, largely in early 2021).
The letter also details guidance for delisting a coin from an exchange.
Preferably, it indicates that customers should be given notice and time to make arrangements before suspending trading.
The firm’s governing body should also be apprised.
It also puts firms on notice that the department may order that an asset be delisted, and that they should be ready to comply.
Flashback: The comment period for these rules began in September.
What we’re watching: How long it takes for anyone’s policies to get approved and how arduous it is to get there.
The state has been known to make firms in the space wait. It took three years of its BitLicense (the overarching rules for virtual currency companies) before just five firms got a greenlight to operate in the Empire State.