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Superintendent Harris Announces New DFS Regulatory Guidance on the Issuance of U.S. Dollar-Backed Stablecoins

Superintendent Adrienne A. Harris Announces New DFS Regulatory Guidance on the Issuance of U.S. Dollar-Backed Stablecoins

New York State Department of Financial Services (DFS) Superintendent Adrienne A. Harris today issued new DFS Regulatory Guidance, setting foundational criteria for USD-backed stablecoins issued by DFS-regulated entities.   

“Since DFS approved the first USD-backed stablecoins for issuance in New York in 2018, our regulated entities have had to meet conservative reserve requirements and provide routine attestations to protect consumers and ensure the stability of the coins issued,” said Superintendent Harris. “Leveraging our years of expertise in the space, our Regulatory Guidance today creates clear criteria for virtual currency companies looking to issue USD-backed stablecoins in New York.”  

New Regulatory Guidance on Baseline Criteria for USD-Backed Stablecoins Addresses the Following: 

  • Backing and Redeemability: The stablecoin must be fully backed by a Reserve of assets, meaning that the market value of the Reserve is at least equal to the nominal value of all outstanding units of the stablecoin as of the end of each business day. The issuer of the stablecoin (the “Issuer”) must adopt clear, conspicuous redemption policies, approved in advance by DFS in writing, that confer on any lawful holder of the stablecoin a right to redeem units of the stablecoin from the Issuer in a timely fashion at par for the U.S. dollar. 

  • Reserve Requirements: The assets in the Reserve must be segregated from the proprietary assets of the issuing entity and must be held in custody with U.S. state or federally chartered depository institutions and/or asset custodians. 

    • The Reserve must consist of the following assets: U.S. Treasury Bills acquired by the Issuer three months or less from their respective maturities, Reverse repurchase agreements fully collateralized by U.S. Treasury bills, U.S. Treasury notes, and/or U.S. Treasury bonds on an overnight basis, subject to DFS-approved requirements concerning overcollateralization, and Deposit accounts at U.S. state or federally chartered depository institutions, subject to DFS-approved restrictions. 

  • Independent Audits: The Reserve must be subject to an examination of management’s assertions at least once per month by an independent Certified Public Accountant (“CPA”) licensed in the United States and applying the attestation standards of the American Institute of Certified Public Accountants (“AICPA”) 

It should be noted that redeemability, the Reserve, and attestations are not the only requirements DFS places or may place on the issuance of stablecoins, and the risks connected to these factors are not the only risks DFS considers. DFS looks at a range of potential risks before authorizing a regulated virtual currency entity to issue a stablecoin, including risks relating to cybersecurity and information technology; network design and maintenance and related technology and operational considerations; Bank Secrecy Act/anti-money-laundering (“BSA/AML”) and sanctions compliance; consumer protection; safety and soundness of the issuing entity; and the stability/integrity of the payment system, as applicable. DFS may impose requirements on a stablecoin arrangement to address any of these risks, or any other risks, consistent with DFS’s statutory mandate and the laws and regulations relevant to the circumstances. 

The purpose of this Regulatory Guidance is to set forth baseline requirements that will generally apply to stablecoins backed by the U.S. dollar that are issued under DFS oversight. However, DFS may impose different requirements on any particular stablecoin arrangement backed by the USD and will require clear and conspicuous disclosure of any such different requirements. 

This Regulatory Guidance does not apply to USD-backed stablecoins listed, but not issued, by DFS-regulated entities. DFS does expect regulated entities that list USD-backed stablecoins to consider this guidance when submitting a request for coin issuance or seeking approval for a coin self-certification policy.  

DFS has been in close contact with New York State-regulated virtual currency entities in light of recent events in the stablecoin market and the virtual currency space. Given how fast the virtual currency industry is evolving, DFS is using all the regulatory tools available to keep pace with industry, make data-driven policy decisions, and proactively respond to the virtual currency market. This approach includes regular engagement with industry, consumer advocates, the legislature, other regulators; monitor key trends and issues through research and data collection; commit to operational excellence; and ensure we have the appropriate expertise within DFS to drive policy and supervision. 

The information contained in the Regulatory Guidance is not intended to be exhaustive, and DFS may update it from time to time for any reason, including in response to new information, evolving markets, or additional experience.  

Read a copy of the Stablecoin Regulatory Guidance.

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