New York’s Attorney General Seeks Broader Authority To Police Crypto

New York Attorney General Letitia James is proposing new legislation that would give her office more authority to regulate the increasingly tumultuous cryptocurrency industry, The Wall Street Journal reported.

The bill would give the attorney general’s office broader enforcement authority over crypto firms that have operations in the state, while codifying the New York State Department of Financial Services’ authority to license participants in the sector and oversee the state’s digital asset licensing regime.

The bill, called the Crypto Regulation, Protection, Transparency and Oversight Act, or CRYPTO, will be submitted by Ms. James’s office to the New York State Senate and Assembly for consideration during the 2023 legislative session, which runs through June 8.

The New York attorney general, an elected official, is seeking jurisdiction to enforce crypto firms’ violations of the law, issue subpoenas and impose civil penalties of $10,000 per violation for each individual or $100,000 per violation from each crypto firm, according to a statement from the attorney general’s office. The attorney general is also seeking to shut down businesses that are engaging in alleged fraud and illegality, The Wall Street Journal reported.

The website of New York Attorney General Letitia James posted: “Attorney General James Proposes Nation-Leading Regulations on Cryptocurrency Industry”. Here are some parts of the press release:

New York Attorney General Letitia James today announced landmark legislation to tighten regulations on the cryptocurrency industry to protect investors, consumers, and the broader economy. The multi-billion dollar industry lacks robust regulations making it prone to dramatic market fluctuations, and has been used to hide and facilitate criminal conduct and fraud.

Attorney General James’s program bill, which proposes the strongest and most comprehensive set of regulations on cryptocurrency in the nation, would increase transparency, eliminate conflicts of interest, and impost commonsense measures to protect investors, consistent with regulations imposed on other financial services…

Here is an overview of the CRYPTO bill:

Stop Conflicts of Interest

Preventing common ownership of crypto issuers, marketplaces, brokers, and investment advisers and preventing any participant from engaging in more than one of those activities;

  • Preventing crypto brokers and marketplaces from trading for their own accounts;
  • Prohibiting marketplaces and investment advisers from keeping custody of customer funds;
  • Prohibiting brokers from borrowing or lending customer assets; and
  • Prohibiting referrals from marketplaces to investment services for compensation

Require Public Reporting of Financial Statements

  • Undergo mandatory independent auditing and publish audited financial statements;
  • Provide investor with material information about issuers, including risks and conflict-of-interest disclosures;
  • Require cryptocurrency promoters to register and report their interest in any issuer whose crypto assets they promote

Require Public Reporting of Financial Statements

  • Enacting and codifying “know-your-customer” provisions, meaning brokers would have to know essential facts about their customers, and requiring crypto bankers and marketplaces to only conduct business with first that comply to KYC provisions;
  • Banning the use of the term “stablecoin” to describe market digital assets unless they are backed 1:1 with U.S. currency or high-quality liquid assets as defined in federal regulations; and
  • Requiring platforms to reimburse customers who are victims of unauthorized asset transfers resulting from fraud.

It sounds to me like Attorney General Letitia James is wanting to treat crypto companies in a way that is similar to how banks are treated. That said, I think those companies will attempt to push back against this proposed bill.