Financial Services Superintendent Maria T. Vullo today announced that the New York State Department of Financial Services (DFS) has issued guidance reminding all virtual currency entities licensed by New York State including those that hold a money transmitter license, that they are required to implement measures designed to effectively detect, prevent, and respond to fraud, attempted fraud, and similar wrongdoing. In addition, DFS reminded virtual currency companies that they must be especially vigilant against efforts at market manipulation.
Despite some common misconceptions, many cryptocurrency platforms (see DFS' notation) are already taking proactive stances with regards to fraud prevention, AML, and market manipulation.
Common themes among effective compliance programs include:
- Transaction monitoring (cross-border and inside the blockchain)
- Risk ratings of customers, jurisdictions, and products incorporated into monitoring activities
- KYC, CDD, and EDD programs
- Sanctions screening programs
- Timely reporting of suspicious activity
- Strong enterprise governance balancing risk and controls with business requirements
DFS' refined guidance is yet another step towards establishing a clear regulatory framework that is vital to the mass adoption of cryptocurrency as a trusted exchange of value.
In the guidance issued today, DFS directed virtual currency entities to adopt measures that include, at a minimum, effective implementation of a written policy that: - Identifies and assesses the full range of fraud-related and similar risk areas, including, as applicable, market manipulation; - Provides effective procedures and controls to protect against identified risks; - Allocates responsibility for monitoring risks; and - As part of its procedures and controls to protect against identified risks, virtual currency entity must provide for the effective investigation of fraud and other wrongdoing, whether suspected or actual, including, as applicable, market manipulation. In addition, immediately upon discovering any wrongdoing, a virtual currency entity must submit to DFS a report stating all pertinent details known at the time of the report.