“The world looks to New York, and the world looks to [its] Department of Financial Services,” veteran crypto regulator Ken Coghill told a Cornell audience.
Love it or leave it, New York State has been a force in crypto regulation.
Ten years ago, the state created the United States’ first comprehensive regulatory framework for firms dealing in cryptocurrencies, including key consumer protection, anti-money laundering compliance and cybersecurity guidelines.
In September 2015, the New York Department of Financial Services (NYDFS) issued its first BitLicense to Circle Internet Financial, enabling the company to conduct digital currency business activity in the state. Ripple Markets received the second BitLicense in 2016. Circle and Ripple went on to become giant players in the global cryptocurrency and stablecoin industry.
Today, the NYDFS regulates one of the largest pools of crypto firms in the world, and it is often cited as the gold standard for crypto regulation in the US.
It’s against that background that Ken Coghill, NYDFS’s deputy superintendent for virtual currencies, appeared at Cornell Tech’s blockchain conference on April 25 to discuss “A New Era of U.S. Innovation in Crypto.”
“We set the guardrails”
Most of the firms that have come to the NYDFS for a BitLicense are crypto-native firms, and often, they are new to the financial world and not used to dealing with regulators. Many times they don’t fully understand that they are in control of someone else’s asset, noted Coghill at the New York City conference, adding:
If you want to start a business and the only person you’re putting at risk is your own business, that’s not really our concern. We only exist because you’re selling something to somebody else, and you’re maintaining control over that product for someone else.
“We set the guardrails,” Coghill said, and it’s the industry’s job to figure out how to stay within those guardrails. The NYDFS can’t possibly contemplate every element that’s going to go wrong in a business.
These days, more conventional financial institutions are becoming interested in crypto as well, added Coghill. Large banks are beginning to offer crypto custody services, and others are starting to provide settlement services. “The conventional [bank] model is being brought into the crypto [sphere] primarily because it makes people feel comfortable,” said Coghill.
And while the NYDFS has only issued 22 BitLicenses to date, it appears to be ready to handle a tide of applications from TradFi firms if and when they materialize. “On a per capita basis, we have more supervisory resources focused on crypto businesses than we do for all of those other [non-crypto] businesses,” said Coghill. This includes 3,000 banks, insurance companies and other financial institutions.
