On February 7, 2018, the New York State Department of Financial Services (“DFS”) issued guidance for all virtual currency business entities (“VCBEs”) regarding the prevention of market manipulation and other wrongful activity. In a brief, two-page document, the DFS: (1) emphasized the importance of effectively preventing and responding to fraud and similar wrongdoing; (2) stated that effective measures must include implementation of a written policy to, among other things, identify and effectively prevent risks; and (3) required VCBEs to provide reports to DFS immediately upon the discovery of “any wrongdoing”.

DFS directed each VCBE to take effective measures to detect, prevent, and respond to fraud or market manipulation. At a minimum, DFS expects such measures to include the effective implementation of a written policy that:

  1. identifies and assesses the full range of fraud-related and similar risk areas, including, as applicable, market manipulation;
  2. provides effective procedures and controls to protect against identified risks;
  3. allocates responsibility for monitoring risks; and
  4. provides for periodic evaluation and revision of the procedures, controls and monitoring mechanisms in order to ensure continuing effectiveness, including continuing compliance with all applicable laws and regulations.

DFS also directed each VCBE to provide for the “effective investigation” of fraud or other wrongdoing as part of its procedures and controls.

Should a VCBE discover any wrongdoing, it must immediately submit a report to DFS “stating all pertinent details known” and, thereafter and as soon as practicable, submit further reports regarding any material developments. The expectation of DFS is that in most cases, it should be feasible for a VCBE to submit such a follow-on report within 48 hours after the original report of wrongdoing. DFS also stated that VCBEs must maintain records of each incident of wrongdoing.

DFS’s guidance applies to any entity that has a license under 23 NYCRR Part 200 or that is chartered as a limited purpose trust company under the New York Banking Law.” According to DFS, DFS has granted four licenses and two charters to date.

 

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Photo of Lily Katharine Hines Lily Katharine Hines

Lily Hines focuses her practice on licensing and other commercial transactions related to intellectual property and technology. She also has considerable background providing intellectual property counsel and support in connection with large mergers and acquisitions, which continues to inform her approach to commercial…

Lily Hines focuses her practice on licensing and other commercial transactions related to intellectual property and technology. She also has considerable background providing intellectual property counsel and support in connection with large mergers and acquisitions, which continues to inform her approach to commercial matters. Prior to entering law practice, Ms. Hines clerked for a federal district court judge.

Photo of David Stein David Stein

David Stein advises clients on credit reporting, financial privacy, financial technology, payments, retail financial services, and fair lending issues. He assists a broad range of financial services firms, consumer reporting agencies, financial technology companies, and their vendors with regulatory, compliance, supervision, enforcement, and…

David Stein advises clients on credit reporting, financial privacy, financial technology, payments, retail financial services, and fair lending issues. He assists a broad range of financial services firms, consumer reporting agencies, financial technology companies, and their vendors with regulatory, compliance, supervision, enforcement, and transactional matters.

Mr. Stein has significant experience advising clients on compliance with the FCRA, GLBA, ECOA, EFTA, E-Sign Act, TILA, TISA, FDCPA, Dodd-Frank Wall Street Reform and Consumer Protection Act, and FTC Act, as well as state financial privacy laws. Mr. Stein is a member of the firm’s fintech and artificial intelligence initiatives and works with clients on issues related to cutting edge technologies, such as blockchain, virtual currencies, big data and data analytics, artificial intelligence, online lending, and payments technology.

Mr. Stein previously served in senior regulatory, policy-making, and management positions at the Consumer Financial Protection Bureau (CFPB) and the Federal Reserve Board (FRB). He played a significant role in developing regulations and policy on credit reporting, financial privacy, retail payments systems, consumer credit, fair lending, overdraft services, debit interchange, unfair or deceptive acts or practices, and mortgage origination and servicing. Mr. Stein draws upon his government experience in representing clients before the CFPB, the FRB, and other regulatory agencies and leverages his insights into the regulatory process to provide clients with practical, actionable advice.