Consistent with New York's status as a financial services and technology hub, the New York State Department of Financial Services (the "NY DFS") announced on July 23, 2019 a new Research and Innovation Division (the "Division") focusing on fintech innovation and consumer protection. The Division will also assume responsibility for licensing and supervising entities engaged in virtual currency business activity under the NY DFS's BitLicense Regulation.
As the NY DFS explained, the Division is intended to make the NY DFS "the regulator of the future" by reviewing the use of technology in financial services, safeguarding consumer data rights, and fostering fintech innovation. The Division follows recently confirmed NY DFS Superintendent Linda Lacewell's prioritization of fintech and consumer protection, and is the latest in a long line of NY DFS actions to heighten regulation of fintech market participants.
We have been closely monitoring NY DFS developments. The Division is the third new NY DFS division this year. In April 2019, the agency combined the previously separate Enforcement and Financial Frauds Division and the Consumer Protection Division into a single Consumer Protection and Financial Enforcement Division. (See NYDFS Creates "Powerhouse " Consumer Financial Protection Division.) And, in May 2019, the NY DFS established the Cybersecurity Division to enforce New York's cybersecurity regulations. (See New York Department of Financial Services Announces Creation of Cybersecurity Division.)
The Division signals the NY DFS's continued concentration on fintech, while it simultaneously pursues, together with other state regulators, legal challenges to federal bank regulatory oversight of fintech companies. Whether the new Division will take steps to address New York regulatory hurdles some fintech entities view as impediments to market innovation—including the operational burdens associated with compliance with the NY DFS BitLicense Regulation's strict requirements—remains to be seen.
We will continue to monitor NY DFS fintech developments.
Shirley M. Chan, an associate in the New York Office, assisted with the preparation of this Alert.