New York financial regulator issues new rules on listing, delisting coins

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The New York Department of Financial Services (NYDFS) has issued updated guidance on coin listing for licensed digital asset entities, including a new requirement to submit a formalized coin-delisting policy for approval by the state regulator.

The NYDFS is the New York financial regulator in charge of the state’s notorious BitLicense regime. Under the new guidance, digital asset companies’ boards of directors must implement and update the coin listing policy annually. The board must also review each new listing, and conflicts of interest must be fully disclosed and addressed.

Coins being considered for listing must also be subject to comprehensive risk assessments, which cover risks relating to the design, operation, security, market and liquidity, illicit finance, and legal and regulatory risks of the coin.

Further, any coin which has one of any of the following characteristics must be approved by the NYDFS:

• Stablecoins
• Exchange coins
• Where a single entity or individual controls over 51% of the hash power in proof of work or an equivalent concentration of power in other models
• Bridged coins
• Any coin whose circulating supply is less than 35% of the total supply

The focus on centralization is notable and is a reflection of increased regulatory consciousness around centralized decision-making in supposedly decentralized projects.

As for delistings, no coin may be delisted without 30 days’ notice to platform users.

Gate-keeper exchanges finally put under oversight

As regulatory oversight over the digital asset industry increases, it was only a matter of time before the delisting of coins caught some attention. Exchanges play a major role in the success of digital assets, and with unfettered discretion to ignore, list, or delist coins, they become de facto gatekeepers to the market. 

To illustrate this concern, a record-setting class action lawsuit was filed in the U.K. in 2022 by holders of BSV, who accused four exchanges—Binance, Kraken, Bittylicious, and Shapeshift—of colluding to delist the coin without justification, thereby violating the U.K.’s competition laws. In that case, representatives for the exchanges did not hide the fact that they were delisting BSV because of a personal vendetta against its creator. Investors were given a maximum of 24 hours notice and, in some cases, had their BSV forcibly converted to other currencies. Such conduct would have undoubtedly been a violation of the new NYDFS guidance in addition to being a seemingly clear violation of the U.K.’s Competition Act.

NYDFS hard at work

In addition to issuing new guidance, NYDFS Superintendent Adrienne Harris provided an update on the work of the department under her tenure. 

“Since joining DFS, I have made it a priority to ensure the Department’s regulatory and operational capabilities keep pace with industry developments to protect consumers and markets,” said Harris in a statement.

“In less than two years, we’ve built our team to over sixty experienced professionals, created and enhanced consumer an industry safeguards, and engaged with policymakers around the world – including with the U.S. Congress to help ensure there is a federal prudential regulator to supervise the industry.”

Under Harris’ leadership, DFS has issued eight pieces of guidance tailored to the digital asset industry, including industry-first rules on stablecoins. Harris has also overseen $132 million in financial penalties against digital asset companies, including Robinhood and Coinbase (NASDAQ: COIN). 

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