What Happened?

The New York Department of Financial Services (NYDFS or Department) released proposed updates to its guidance on the self-certification process for listing and delisting digital assets. It also announced significant changes to the Department’s “Greenlist” of vetted digital assets.

This industry development affects companies that have received permission to engage in virtual currency business activity from the NYDFS, either through a “bitlicense” or a limited purpose trust charter.

In June 2020, the Department issued guidance that permitted digital asset businesses to self-certify digital assets subject to a Department-approved coin-listing policy. It also created a Greenlist of digital assets which all regulated businesses could offer subject to that guidance.

The proposed regulatory update expands the scope and nature of the self-certification process and mandates virtual currency companies implement a new coin-delisting policy. The changes to the Greenlist, effective immediately, reduce the assets included on the list and restrict use of the list to companies that have a Department-approved delisting policy in place.

What Affected Companies Need To Do Next

The updates made to the NYDFS’s Greenlist will result in the removal of many approved coins.[1] Although the Department is not requiring digital asset companies to immediately stop services for these coins, they are urging them to collaborate and determine the proper process for removing them.[2] This is to avoid any potential market disruption. Future listings of coins on the Greenlist require notice to the Department and establishment of a Department-approved delisting policy.

The Department is now requiring all regulated digital asset businesses to establish and maintain policies for delisting coins. The NYDFS expects that each business will create and enforce a policy for removing certain digital assets from support with minimal impact on the public and “consistent with safety and soundness.” Delisting may be required due to further changes to the Greenlist and in connection with the risk tracking required by a coin-listing policy. In contrast, coin-listing policies remain optional.

TAKE ACTION: Virtual currency entities must meet with the NYDFS by December 8, 2023, to “preview” their coin-delisting policies and must submit a final version to the Department by January 31, 2024.

The NYDFS’s proposed guidance would update the already robust coin self-certification framework. The proposal expands requirements for governance, risk assessment, and tracking. It also includes a new ban on certain types of digital assets. Stablecoins, exchange coins,[3] and bridged coins[4] may not be self-certified under the coin-listing policy of a regulated business. Additionally, digital assets that can be self-certified must be reviewed in light of the resiliency of their native protocol and circulating supply.

TAKE ACTION: Comments to the proposed “Coin-Listing Policy Framework” must be submitted to the Department by October 20, 2023.

[1] Last updated in June 2022, the list previously included 0x (ZRX), Aave (AAVE), Bancor Network Token (BNT), Basic Attention Token (BAT), Bitcoin Cash (BCGH), Chainlink (LINK), Dogecoin (DOGE), Ethereum Classic (ETC), Kyber Network (KNC), Litecoin (LTC), Livepeer (LPT), Lumens (XLM), OmiseGO (OMG), Ripple (XRP), Synthetix (SNX), Wrapped Bitcoin (wBTC), and Z.com USD (ZUSD).

[2] Virtual Currency Entities that have otherwise received the Department’s approval to list certain virtual currencies pursuant to an application with the Department for a material change to their businesses are permitted to continue listing virtual currencies.

[3] “A Virtual Currency Entity cannot self-certify any coin that is issued by a cryptocurrency exchange or can otherwise be used to provide benefits on a cryptocurrency exchange.”

[4] “A Virtual Currency Entity cannot self-certify any coin that circulates on a protocol in which it is not natively issued. This restriction extends to any coin designed to serve as collateral or governance for an application that enables the transfer of coins across different protocols (e.g., token bridge platforms).”

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