- New York Attorney General Letitia James has proposed a new set of rules for the crypto industry in the state aimed at creating greater transparency, conflicts of interest, and investor protection.
- The Crypto Regulation, Protection, Transparency, and Oversight Act, or CRPTO Act, would bolster the authority of the New York State Department of Financial Services, which has regulated crypto firms under its BitLicense regime since 2015.
- The bill aims to prevent conflicts of interest by requiring market participants to stick to one role, and it also includes rules on stablecoins, warning against digital assets that are not fully backed by US dollars or high-quality assets.
Letitia James on the offensive
New York Attorney General Letitia James has proposed new rules aimed at bolstering regulation of the cryptocurrency industry in the Empire State. The proposal, known as the Crypto Regulation, Protection, Transparency, and Oversight Act (CRPTO Act), aims to make the nascent industry look more like Wall Street in terms of how it’s overseen. The goal of the new rules is to offer greater protection for investors by focusing on transparency, conflicts of interest, and investor protections. The bill is set to be submitted to state lawmakers for consideration during the 2023 legislative session, which will end on June 8.
New York State has already garnered a reputation for having a robust compliance framework under the New York State Department of Financial Services (DFS), which has regulated crypto firms under its BitLicense regime since 2015. The CRPTO Act would further bolster the DFS’s authority by imposing the same rules on crypto firms that many current security industry participants have to comply with.
The proposed legislation comes amid a nationwide uptick in regulatory scrutiny and follows a turbulent year for the industry, defined by several high-profile bankruptcies and thousands of investors burned. The New York Attorney General’s office called out the conduct of several firms, such as the defunct crypto lender Celsius and Terraform Labs, as examples of behavior that would be outlawed under the CRPTO Act.
The CRPTO Act is not without its critics, however. General Counsel at Hashflow Rahsan Boykin told Decrypt that state-by-state regulation has the potential to be somewhat counterproductive, pushing companies out of areas with stringent regulations or creating an “uneven playing field” for those that stay. While Boykin believes that the CRPTO bill is good, he added that a national regulatory structure would ultimately be best, ensuring that the industry is regulated consistently.
A major portion of the CRPTO Act is devoted to preventing conflicts of interest. Some measures include preventing market participants from being token issuers, marketplaces, and brokers at the same time—requiring them to stick with one role. However, Timothy Cradle, Head of Compliance at Zeebu and Valuit, told Decrypt that while he likes what the DFS is going for, the new rules aren’t novel, and he has concerns that they won’t be effective in achieving their intended aims.
The OAG claims in a blog post that public disclosure requirements could’ve prevented Celsius’ customers from being blindsided last summer. However, Cradle contends that audited financial statements for Celsius were available publicly and pre-crash through the UK’s House of Companies. Requiring private companies to open up their books when they otherwise wouldn’t have to could also be unpalatable, Cradle said, describing it as somewhat of an “ultimatum” toward digital asset firms to comply or stay away. “I support the requirement,” he said. “I just don’t think it will genuinely protect the consumers.”
The CRPTO Act also includes new rules regarding stablecoins, banning the term from being used to describe digital assets that aren’t fully backed by U.S. dollars or high-quality assets that can easily be converted into cash. While this seems like an interesting concept, Cradle cast doubt on how effective it would be at protecting consumers, saying clever crypto marketers could come up with a new, similar term like “dollar coin,” for example.
In conclusion, New York Attorney General Letitia James’ proposal to strengthen regulations on the cryptocurrency industry in the Empire State is a positive move towards greater transparency and accountability. The CRPTO Act puts forth the strongest and most comprehensive set of regulations on cryptocurrency in the nation, and it draws on regulations that already exist in traditional finance, which could be viewed as notable in terms of legitimizing the digital assets space. However, there are concerns about the effectiveness of the new rules proposed by the CRPTO Act, and whether they could prevent the collapse of cryptocurrencies.