New York comptroller says the financial regulator ‘needs to do more’ on BitLicense program

New York State Comptroller Thomas DiNapoli didn’t mince words when digging into the state’s oversight into crypto companies.

“We found there is limited assurance that [Department of Financial Services] is adequately performing its oversight responsibilities related to the application for and supervision of BitLicenses in the state,” the report says.

The BitLicense program, initiated by the NYDFS in June 2015, aims to provide a well-regulated way for New Yorkers to access digital currencies.

The Comptroller’s concern stems from the possible “risk that licenses could be granted to applicants whose financial stability has not been thoroughly verified or that, once licensed, businesses may not maintain financial or cybersecurity standards.”

Upon investigation, some of the applicants for a BitLicense didn’t complete the necessary steps for the state to run background checks. Out of 8 applicants, 2 failed to finish the fingerprinting process meaning that the Department would have been unable to finish the background checks into “major shareholders and officers prior to application approval.”

The Comptroller’s report also found that the cybersecurity systems of BitLicensees “were not in compliance” with DFS regulations. The financial regulator failed to hand over both quarterly and annual financial statements for the eight BitLicenses assessed by the comptroller’s office.

According to the report, the Supervision team must review both the quarterly and annual reports to ensure that a BitLicensee is compliant.

To combat the comptroller’s concerns, the report suggests that the DFS ensure an adequate follow-up process is implemented.

NYDFS superintendent Adrienne Harris announced the VOLT initiative which aims to improve the financial regulator’s oversight into crypto companies. VOLT stands for vision, operations, leadership and technology.

The audit took place over a span of a few years from July 2018 to July 2023.

The BitLicense program launched in 2015, giving certifications out to businesses engaging in crypto activities including story, selling and issuing digital assets in the state. Outside of BitLicenses, crypto firms can also apply for a charter under the New York Banking Law which would allow them to conduct some crypto business activities.

Earlier this year, the NYDFS proposed a new rule that would change coin listing guidelines, including requiring companies to mandate a coin delisting process.

Harris has announced multiple actions against crypto companies operating in the state. Last January, the DFS announced a $100 million settlement with Coinbase after the company failed compliance checks by the agency.

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