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Techsprint

Digital Regulatory Reporting in Virtual Currency
Techsprint
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DFS Techsprint

DFS is the nation’s premier regulator of virtual currency business activity.

In partnership with the Conference of State Bank Supervisors and the Alliance for Innovative Regulation, DFS sponsored a techsprint to design a Digital Regulatory Reporting mechanism for virtual currency companies. The objective of the effort was to identify emerging risks related to cryptocurrency and to move toward a next generation approach that utilizes technology to more effectively supervise regulated entities.

The techsprint convened virtual currency professionals, regulators and technologists working on regulatory compliance solutions and took place March 1 - March 12, 2021.

Techsprint participants collaborated on developing tech-based responses to problem statements created by DFS in consultation with industry participants, regulators, and other relevant experts. These consulting workshops took place in November and December 2020 and brought together over 100 participants from peer regulators, regulated entities, academics and other ecosystem players.

“The future of financial supervision is digital and needs to happen now. With this first-ever techsprint series, the Department is making progress towards automating the reporting of financial and operational data by our regulated entities, enhancing collaboration between the Department and industry, and helping to foster a safer marketplace for the consumers who depend on it.” -  Linda A Lacewell, Superintendent of DFS

Who Participated

DFS brought together techsprint participants with a broad range of backgrounds, including but not limited to:

  • Cryptocurrency researchers and practitioners
  • Blockchain researchers and practitioners
  • Software developers
  • Graphic designers
  • UX/UI designers
  • Product designers
  • Policy analysts
  • Lawyers
  • Communications professionals
  • Cloud developers
  • Data managers and data scientists

Criteria

The criteria used to select participants included, but were not limited to, the following:

  • Experience in the fields of blockchain, virtual currency, cryptocurrency, digital assets, decentralized finance, or other similar areas;
  • Experience in areas of technology with the potential to improve the collection, processing, storage, analysis, or visualization of regulatory data (e.g. Application Programming Interfaces (APIs), Artificial Intelligence and Machine Learning (AI/ML), automation, Natural Language Processing (NLP), and cloud technology);
  • Familiarity with DFS regulations and requirements regarding virtual currency;
  • Familiarity with other regulations and requirements regarding virtual currency or similar areas;
  • Experience in the fields of Regulatory Technology (RegTech) or Supervisory Technology (SupTech);
  • Experience engaging with regulators regarding the above topics; and
  • Experience working with or for entities authorized by DFS to engage in Virtual Currency Business Activity (VCBA).

Event Details

The techsprint was held virtually during the first two weeks of March, 2021. The event opened on Monday March 1 and culminated in Demo Day on Friday March 12. During the two-week sprint, teams participated in full-day virtual events on March 1, March 2, March 11 and March 12, with the rest of the time devoted to flexible part-time solution-building organized by each team lead.

Problem Statements

Based on input from industry and the regulatory community, the following four problem statements were selected to be the focus of the Techsprint on Digital Regulatory Reporting in cryptocurrency. Teams will select the area they plan to tackle during the first days of the techsprint. (Note: These statements are a work in progress and may change between now and the beginning of the event.) 

  1. How can DFS achieve real-time or more frequent access to company financial data from virtual currency licensees and receive early warning signs of financial risks to the companies or their customers?  
  2. How can DFS obtain real-time transaction data from its licensees and automatically analyze the data to safeguard against illicit financing risks?  
  3. How can DFS use tools such as natural language processing, machine learning, and artificial intelligence to identify risks by processing and analyzing supervisory reports that are submitted by licensees in a wide range of formats?  
  4. How can DFS use technology to facilitate information-sharing among licensees to help them more quickly identify and stop scams, ransomware strikes, and other criminal enterprises that put licensees and their customers at risk? 

Demo Day

Friday March 12, 11am – 2:30pm

Demo Day on March 12, 2021 was the culminating event of the two-week Techsprint when teams had the opportunity to present their solutions to a panel of judges. Each demo ended with judge Q&A, and after all teams presented, the judges privately deliberated. The event ended with an awards ceremony to celebrate the winning teams.

Close to 500 audience members joined us virtually for Demo Day. If you missed it, video of the demos and awards ceremony is available online and open to the public to stream. Watch video of the demos

Speakers

Sandra Ro, Global Blockchain Business Council

Michael Moro, Genesis Global Trading

Jo Ann Barefoot, Alliance for Innovative Regulation

Linda Lacewell, New York State Department of Financial Services

Dan Schulman, Paypal

Judges

Richard Berner, NYU Stern

Sandra Ro, Global Blockchain Business Council

Brian Behlendorf, Hyperledger

Chris Brummer, Georgetown Law

Sheila Bair, Volcker Alliance

Winning Teams

Nine teams presented their solutions on Demo Day for our panel of judges in competition for three different awards. The winning teams are listed below with a brief summary of their solutions in their own words. Watch video of the demos

Greatest Industry Impact: Team CryptoKnight (demo begins at 44:37 in video) 

CryptoKnight is a unified regulatory dashboard for real-time risk, safety and soundness assessment of DFS-regulated crypto firms, drawing from immediately available and usable data sources, including DFS-reporting data, public databases and 3rd-party provided data. The dashboard provides a one-stop-shop of Risk Widgets addressing diverse regulatory risk elements like Sanctions/AML, Market Integrity, Financials Risk, Cyber Risk, Consumer Protection Risk, in order to enable DFS examiners to quickly assess multiple facets of a crypto firm’s health. In designing the solution, the team focused on complementing existing DFS examination and supervision workflows and priorities, while also insisting on realistic short-term applicability regardless of the need for new frameworks and reporting requirements, which may be integrated over time. 

Most Creative Implementation: Team Crypto Avengers (demo begins at 0:00 in video) 

Project Cayuga is an intelligence platform that leverages data from across the BitLicensee ecosystem to surface critical risk insights that would benefit industry members and regulators alike. Data provided by licensees, blockchain analytics companies, and other providers would be accessible on a cloud-based platform with privacy preserving technology. That data is captured in a virtualized data lake administered by a self-regulatory organization of BitLicensees. Licensees would control access to their own data, but the aggregated transaction data would be available to licensees and NY DFS through an AI analytics layer. The analytics layer would have both a push and pull function for licensees, pushing out risk-based alerts, and a pull function for Licensees and DFS to query the data. Project Cayuga goes beyond current blockchain analytics tools by enabling entity resolution between all VASPs, beyond just transactional histories. 

Most Functional Prototype: Team Block-Busters (demo begins at 53:58 in video) 

New technology that keeps pace with this innovative marketplace is needed to support the work of DFS supervisors and examiners. For those of us who have worked in the ecosystem of regulatory supervision and examinations, we understand the challenge of mining voluminous, stale, and disparate data in search of red flags to conduct risk-based reviews. The Collaborative Supervisory Tool (CST) provides visualizations that focus on problem areas and locations. The CST leads to more effective monitoring. Consumers benefit from a safe ecosystem and participants benefit from timely health checks as well as happy customers. 

Honorable Mention: Team SAURONChain (demo begins at 1:24:21 in video) 

We use transaction data provided to DFS by licensees to assess transaction risk, using “risky” addresses reported by one VASP licensee run against other transactions reported by other VASP licensees, enrich that with a view from blockchain forensics vendors, and can compliment this with on-chain data provided through follow-up supervisory or investigative inquiry. By aggregating the results up to the VASP level, we can then get a better view of the compliance profile of the VASP and compare this by laying this side by side with other information, DFS-specific compliance filings and reports, consumer complaints data, and company-specific data such as customers and revenue that is not publicly reported. 

Questions?

Email [email protected] with “Techsprint” in the subject line.