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.