The New York Department of Financial Services (NYDFS) has issued rules to all licensed crypto businesses in New York on the usage of Blockchain analytics. The government agency stressed the necessity of blockchain analytics in completing customer due diligence, transaction monitoring, and sanctions screening in a letter issued to all digital currency firms regulated under the New York Banking Law (23 NYCRR Part 200).
Adrienne Harris, Superintendent of the New York Department of Financial Services, remarked in response to the instruction that crypto rules frequently present compliance challenges owing to their novelty. She, on the other hand, expressed confidence that these problems would open up new avenues for control mechanisms that would best exploit emerging technology, such as blockchain analytics services. Furthermore, she believes that blockchain analytics services are a best practice for virtual currency firms in New York. She stated in her writing:
“VC Entities can use third-party service providers or internally developed blockchain analytics products and services for additional control measures, whether separately or in combination.”
The Guidance was published in response to a directive issued in March by the New York governor’s office, which urged the NYFDS to enhance sanctions against Russia by utilizing techniques such as blockchain analytics. With these recent advancements, New York has moved ahead of the pack in terms of sophisticated laws in the virtual currency business.
The NYDFS’s steadfast reliance on blockchain analytics aims to address, among other things, Anti-Money Laundering (AML) issues, Know Your Customer (KYC) glitches, transaction monitoring of On-Chain activity, and sanctions screening of On-Chain activity. According to the Guidance, virtual currencies are transferable and pseudonymous. As a result, it leaves no room for a third-party regulator, raising the risks for users. In order to meet KYC criteria, the NYDFS insisted on employing products and services that allow consumers to access specific identifying information.
Policies for AML compliance must be developed to detect virtual currency addresses or other information linked with sanctioned individuals and businesses on the SDN List or in approved jurisdictions.
Despite these improvements, the government has never shied away from controversies involving virtual currency. At the moment, the agency has procedures and conditions in place for startups to be licensed (with a BitLicense).Many perceive this as divisive and a strangling of the sector. During this period, numerous crypto businesses have fled the country, while others, such as Coinbase, have limited their activities. In April, the state provided additional monies to the NYDFS to give it more supervisory power over licensed crypto companies in the state, in response to lobbying calls for the licensing framework to be overhauled.