New York State Attorney General Letitia James has proposed a “landmark” crypto legislation that is said to be “the strongest and most comprehensive set of regulations on cryptocurrency” in the United States. The Crypto Regulation, Protection, Transparency, and Oversight (CRPTO) Act would increase transparency, eliminate conflicts of interest, and impose commonsense measures to protect investors, consistent with regulations imposed on other financial services.
The CRPTO Act would require independent public audits of cryptocurrency exchanges and prevent individuals from owning the same companies, such as brokerages and tokens, to stop conflicts of interest. Crypto platforms would also have responsibilities to customers similar to banks under the federal Electronic Fund Transfer Act by requiring platforms to reimburse customers who are the victims of fraud. The bill would also strengthen the New York State Department of Financial Services’ regulatory authority of digital assets.
Moreover, the bill would bolster investor protections by enacting and codifying “know-your-customer” [KYC] provisions and banning the use of the term “stablecoin” to describe or market digital assets unless they are backed 1:1 with U.S. currency or high-quality liquid assets as defined in federal regulations.
The bill would grant the Attorney General jurisdiction to enforce any violation of the law, issue subpoenas, impose civil penalties of $10,000 per violation per individual or $100,000 per violation per firm, collect restitution, damages, and penalties, and shut down businesses engaging in fraud and illegality.
“Rampant fraud and dysfunction have become the hallmarks of cryptocurrency and it is time to bring law and order to the multi-billion-dollar industry. These commonsense regulations will bring more transparency and oversight to the industry and strengthen our ability to crack down on those that don’t pay respect to the law,” said Attorney General James.
The CRPTO Act has been welcomed by industry leaders, including Circle CEO Jeremy Allaire who tweeted his support, saying: “The proposed bill is a balanced and comprehensive approach to protecting consumers and supporting responsible innovation in the US crypto industry.” The Blockchain Association additionally said in a statement: “We will continue to work actively with lawmakers and regulators in New York and across the United States to ensure that thoughtful, effective public policies are in place to support this critical industry and enhance public safety.”
However, not everyone is pleased with the proposed legislation. Caitlin Long, founder of the Wyoming Blockchain Coalition, who has been a vocal advocate of crypto regulation, tweeted: “This is a bad bill for crypto. It gives the AG unchecked power over every person using crypto in NY & every company touching crypto. Essentially it creates a BitLicense 2.0.” Long has been a major critic of the BitLicense – a regulatory compliance requirement in New York State that has been heavily criticised by the cryptocurrency industry and dubbed as one of the “least friendly” states for cryptocurrency.
The CRPTO Act would codify the DFS’ authority to license digital asset brokers, marketplaces, investment advisors, and issuers prior to engaging in business in New York and allow DFS to oversee the digital asset licensing regime. The DFS has been an active regulator in licensing virtual currencies and has to date issued 25 virtual currency licences.
The bill has been sent to the state legislature, which will need to pass it for it to become law. If passed, the CRPTO Act would make New York the first state in the country to establish a comprehensive regulatory framework for the digital asset market.