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NYDFS gets additional oversight authority over digital currency firms

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The New York Department of Financial Services (NYDFS) is set to get additional oversight authority over the digital currency industry under the state Senate’s new budget provision for the fiscal year 2023.

NYDFS is one of the most advanced state-level digital asset regulators in the United States, having been the first in the country to issue a license to a virtual asset service provider (VASP). Known popularly as the BitLicense, the coveted license has become a gold standard in the country, with many established companies, including Kraken, unable to obtain it.

In the state Senate’s new budget, which it passed on Saturday, a provision tasking the NYDFS with developing a new assessment for the VASPs it oversees was added. This assessment will bring VASPs to the same regulatory scrutiny that banks and other traditional financial services undergo.

These new assessments will only cover expenses tied directly to the oversight of digital asset firms, the budget states, as one outlet reports.

“The expenses of every examination of the affairs of any person regulated pursuant to this chapter that engages in virtual currency business activity shall be borne and paid by the regulated person so examined, but the superintendent, with the approval of the comptroller, may in the superintendent’s discretion for good cause shown remit such charges,” the budget reads.

In her statement, NYDFS Superintendent Adrienne Harris thanked Governor Kathy Hochul for the new provisions in a budget that she believes will “revitalize our state’s economy and create a stronger New York that works for everyone.” 

The new budget provisions will take effect after two months.

Since she took over at the helm of the NYDFS in January this year, Harris claims to have focused on creating a fairer, more transparent, and more resilient financial services system in New York. Having been a former board member of the Digital Dollar Foundation, which pushes for a U.S. central bank digital currency (CBDC), she was expected to be friendlier with VASPs. Since she took over, she has issued the BitLicense to BitOoda, Provenance Technologies and most recently Apex Crypto.

“Furthermore, the budget includes a new authority to collect supervisory costs from licensed virtual currency businesses, like the Department already does for banking and insurance companies… This new authority will empower the Department to build staff with the capacity and expertise to best regulate and support this rapidly growing industry,” Harris remarked. 

While Harris has applied a lighter touch with VASPs, the BitLicense has remained a controversial issue. Many companies had to flee the state back in 2015 when the NYDFS started going after them. They included exchanges like ShapeShift and Kraken. Although, the latter is even leaving San Francisco as it looks to be following Binance in ensuring it has no physical headquarters, which hasn’t played out too well for Binance.

Even for those that have acquired the BitLicense like Coinbase (NASDAQ: COIN), many have been forced to slash down the services and number of digital tokens they offer New Yorkers. 

Founders of smaller VASPs have accused NYDFS of playing kingmaker in the state through the license, which they claim favors bigger companies and wipes out their smaller rivals. It’s estimated that the cost of fully applying for the license, including the legal expenses, runs up to $100,000. This has ensured that a disproportionately high number of BitLicense recipients are multi-billion dollar firms, from Circle, PayPal and Block (formerly Square) to Bitstamp, Gemini and Robinhood.

Digital currency lobbyists, who have flocked New York in recent months, have been fighting to have the BitLicense either overhauled or some of its requirements scaled down. However, for now, VASPs have to meet the very high standards that the NYDFS has imposed in its bid to protect consumers in the state.

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