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New York finance regulator tightens crypto listing guidance

November 16, 2023 Coin Telegraph

Crypto firms’ policies on coin listing and delisting must align with a list of standards set by the NYDFS.

Guidelines for firms listing and delisting cryptocurrencies in New York have tightened up to better protect investors, according to the state’s financial regulator.

The New York State Department of Financial Services (NYDFS) unveiled new restrictions on Nov. 15 which mandate crypto companies submit their coin listing and delisting policies for NYDFS approval.

Company policies will be measured against more stringent risk assessment standards set forth by the NYDFS to protect investors. Technological, operational, cybersecurity, market, liquidity and illicit activity risks of the tokens are among the factors to be considered by the NYDFS.

The incoming changes apply to all digital currency business entities licensed under the New York Codes, Rules and Regulation or limited purpose trust companies under the state’s Banking Law. The NYDFS initially called for public feedback on the proposal in September.

NEW: DFS Superintendent Adrienne A. Harris Adopts New Regulatory Guidance Regarding the Listing of Virtual Currencies

More here: https://t.co/F2eyZKzucG pic.twitter.com/p5kfXfUVnO
— NYDFS (@NYDFS) November 15, 2023

Cryptocurrency firms with a previously approved coin listing policy are not permitted to self-certify any tokens until they submit to and receive approval from the NYDFS.

Among the firms that must comply with the new rules are stablecoin issuer Circle, crypto exchange Gemini, fund manager Fidelity, trading house Robinhood and payments giant PayPal.

All affected firms must meet with the NYDFS by Dec. 8, 2023, to preview their draft coin listing and delisting policies and submit them by Jan. 31, 2024.

Superintendent of Financial Services Adrienne A. Harris said the financial regulator would implement an “innovative and data-driven approach” to oversee coin listings, delistings and the cryptocurrency market more broadly.

Harris stressed the new rule isn’t part of a state-wide crackdown on the cryptocurrency industry:

“[We want] to ensure that New Yorkers have a well-regulated way to access the virtual currency marketplace and that New York remains at the center of technological innovation and forward-looking regulation.”

In February, NYDFS said it broadened its ability to identify cryptocurrency-related illicit activities, such as insider trading and market manipulation.

About 690 blockchain-based companies are based in New York, while 19% of New Yorkers own cryptocurrency, according to an August report by Coinbase.

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Decentralized finance yet to pose ‘meaningful risk’ to stability — EU regulator

October 12, 2023 Coin Telegraph

Coin Telegraph

The European Securities and Markets Authority argued that DeFi was still too small to pose any sizeable risks to overall financial stability, but should be monitored.

Decentralized finance (DeFi) is yet to pose a meaningful risk to overall financial stability but does require monitoring, according to the European Union’s financial markets and securities regulator.

On Oct. 11, the European Securities and Markets Authority (ESMA) released a report titled Decentralized Finance in the EU: Developments and Risks. Aside from discussing the nascent ecosystem's benefits and risks, the regulator concluded it is yet to pose a sizeable risk to financial stability.

“Crypto-assets markets, including DeFi, do not represent meaningful risks to financial stability at this point, mainly because of their relatively small size and limited contagion channels between crypto and traditional financial markets.”

The total crypto market capitalization is just over $1 trillion, and DeFi total value locked is a mere $40 billion, according to DefiLlama. Comparatively, the total assets of financial institutions in the EU amounted to around $90 trillion in 2021, according to the European Commission.

*DeFi TVL by protocol type. Source: ESMA*

The report said that the total crypto market is about the same size as the EU’s twelfth largest bank or 3.2% of the total assets held by EU banks.

The ESMA also looked into several crypto contagions of 2022, including the collapse of the Terra ecosystem and FTX, noting that this crypto “Lehman moment” still had “no meaningful impact on traditional markets.”

Nevertheless, the regulator observed that DeFi has similar traits and vulnerabilities to traditional finance, such as liquidity and maturity mismatches, leverage, and interconnectedness.

It also highlighted that although investors’ exposure to DeFi remains small, there are still serious risks to investor protection due to the "highly speculative nature of many DeFi arrangements, important operational and security vulnerabilities, and the lack of a clearly identified responsible party."

It cautioned that this could “translate into systemic risks if the phenomenon were to gain significant traction and/or if interconnections with traditional financial markets were to become material.”

Furthermore, the report identified a “concentration risk” associated with DeFi activities.

“DeFi activities are concentrated in a small number of protocols,” it noted adding that the three largest ones represent 30% of the TVL.

*Top ten DeFi protocols by TVL. Source: ESMA*

“The failure of any of these large protocols or blockchains could reverberate across the whole system,” it said.

The regulator is paying much closer attention to DeFi and crypto markets following the publication of its second consultative paper on the Markets in Crypto Assets (MiCA) regulations earlier this month.

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