Because of market fears over what the coronavirus can do to the global economy, trading in digital assets has suffered alongside trading in conventional markets. Levels have plummeted, with some projects losing 50%-90% of their previous values. This is a great opportunity for some companies to try to skip out and blame their failure on COVID-19, but the New York Department of Financial Services (NYDFS) is going to do what it can to try to help prevent that from happening. Although its efforts can only go so far, it wants exchanges operating in the digital asset space that hold a BitLicense to present contingency plans for their operations.
The NYDFS sent out a letter to all New York-licensed companies in the Bitcoin ecosystem, explaining, “COVID-19 has already had adverse economic effects domestically and globally. It is critical that each regulated entity establish plans to address how it will manage the effects of the outbreak and assess disruptions and other risks to its services and operations.”
As a result, all regulated institutions must deliver to the financial watchdog a plan for dealing with any disruption of services or operations. The plans are required to be submitted “as soon as possible,” or within 30 days of the date of the letter, which was March 10.
The NYDFS adds, “DFS would underscore, in particular, the risk to Virtual Currency businesses of increased instances of hacking, cybersecurity threats, and similar events, as bad actors attempt to take advantage of a COVID-19 outbreak, and the possible resulting need for heightened security measures, such as enhanced triggers for fraudulent trading or withdrawal behavior. We would also underscore the possibility of custody risk for Virtual Currency, such as the possible need for special arrangements to move Virtual Currency from ‘cold’ to ‘hot’ wallets during times when employees may not all be working from their usual locations. We would also remind you that your institutions may have obligations to notify DFS if positive net worth falls below a certain threshold above the minimum required capitalization.”
In states or jurisdictions where exchanges don’t have to be regulated, holding them responsible becomes more challenging. New York is not going to experience as great a threat because of its regulatory framework that forces, to some degree, accountability. The NYDFS does not, however, provide guidance on what will happen to those entities that don’t respond in time or who suddenly turn off the lights without warning.
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