Regulation
New York Strengthens Protections for Cryptocurrency Investors with Better Complaint Handling
The New York State Department of Financial Services (NYDFS) has issued new guidelines requiring companies engaged in virtual currency activities to maintain robust policies and procedures to quickly respond to customer service inquiries and complaints.
The directive, issued by Superintendent Adrienne Harris, emphasizes the need for virtual currency entities (VCEs) to provide consumers with a transparent and timely resolution process. The state definition of VCE includes those who hold the New York BitLicense, as well as companies incorporated as limited purpose trust companies under New York banking law, which essentially cover cryptocurrency businesses licensed in New York.
Emphasis on positive customer experience
Superintendent Harris emphasized that the guidelines are designed to ensure a positive customer experience, benefiting both consumers and the businesses involved. He said: “Consumers have the right to a transparent and timely process for resolving complaints and answering questions, regardless of the company or product in question.” The guidance is part of the VOLT initiative, aimed at strengthening regulator oversight of the virtual currency industry.
According to the guidance, VCEs must offer their customers accessible channels, such as telephone, email or chat, to submit complaints and service requests. These companies are also required to regularly update customers on the status of their requests, providing estimated timeframes for resolution.
Additionally, NYDFS requires that VCEs conduct a quarterly review of requests and complaints received, a process that will be subject to regulator oversight. Companies must also submit their policies and procedures for NYDFS review by November 1, 2024.
Historical context and impact of BitLicense
NYDFS has been proactive in regulating the cryptocurrency industry in New York, having established its BitLicense regime in 2015. This regulation has seen a variety of companies, including major names like Coinbase Inc., Circle Internet Financial, LLC, and Robinhood Crypto, obtain virtual services currency licenses. However, strict regulations have also led some companies to exit the New York market.
The NYDFS statement also notes that the information provided in the guidance is not exhaustive and may be updated to respond to new information or changes in the market. The guidance is also not intended to limit the applicability of any existing law or regulation.
This regulatory tightening follows extensive research conducted by NYDFS, which included consultations with key stakeholders. Superintendent Harris has previously refuted theories suggesting a coordinated effort by US regulators to isolate the cryptocurrency sector from the banking system, describing such claims as “ridiculous” and “silly”.
New York’s crackdown on cryptocurrencies
In a related development, New York Attorney General Letitia James has vowed to step up regulatory enforcement against non-compliant crypto firms. This commitment was demonstrated through a recent landmark $2 billion settlement with cryptocurrency lender Genesis over allegations that the company deceived investors regarding its Gemini Earn program, leading to significant financial losses.
This settlement, announced by James, is the largest of its kind in New York legal history and requires Genesis to return fraudulently acquired funds and cease its operations in New York.
Since his election in 2018, Attorney General James has been vigorous in his oversight of the cryptocurrency marketinitiating several crackdowns to ensure that companies operating in the cryptocurrency industry adhere to established financial regulations.
The NYDFS also imposed more than $177 million in fines against cryptocurrency companies that failed to comply with the law. James reiterated his stance on regulatory compliance, stating: “Cryptocurrency companies have to play by the same rules as everyone else. We will hunt down those who don’t.
New York’s evolving regulatory landscape underscores the state’s commitment to ensuring a safe and compliant environment for cryptocurrency transactions, reflecting the growing scrutiny and regulatory demands facing the cryptocurrency industry at large.