On June 8, 2022, the New York State Department of Financial Services (“NYDFS”) issued regulatory guidance applicable only to U.S. dollar-backed payment stablecoins issued by NYDFS-regulated entities. The guidance comes a day after Senators Kirsten Gillibrand (DN.Y.) and Cynthia Lummis (R-Wyo.) released a bill calling for sweeping changes to federal regulation of the cryptocurrency industry. (see our quick analysis here) and less than a week after the New York Legislature passed two bills aimed at regulating crypto. Focusing on three criteria – redeemability, reserves, and attestation – the NYDFS Stablecoin Guidelines aim to ensure that issuers of payment stablecoins remain solvent so that holders of these payment stablecoins can exercise their right of redemption. in right time. These guidelines do not address the trading price of a stablecoin and do not require the issuer to take active steps to secure the price of the asset in the markets.
NYDFS seeks to protect consumers by ensuring that holders of a payout stablecoin are able to redeem it “in a timely manner at par for the US dollar.” According to the guidelines, “timely” means no more than 2 full business days after a holder exercises their right, but NYDFS reserves the discretion to extend the time when “timely redemption would likely jeopardize support of Reserve assets or the orderly liquidation of Reserve assets”.[.]“Issuers are required to obtain prior NYDFS approval of their buyback policies before onboarding holders. A recurring theme in redemption standards is disclosure – NYDFS requires disclosure of all net charges, the meaning of “redemption,” and the timeliness required to complete the redemption.
Reserve and Certificate
According to the guidelines, stablecoins must be backed by a reserve of US treasuries, such as treasury bills with a maturity of no more than three months, notes and/or bonds. Such reserves are, however, subject to NYDFS-approved “overcollateralization requirements” and must be held by US federally or state-chartered depository institutions or NYDFS-approved asset custodians. In addition, the stable payment issuer’s reserve accounts are subject to monthly certification by an independent public accountant (“CPA”). The CPA attestation must validate that all NYDFS reserve requirements were met and that the value of the reserve covered the amount of stablecoin units in circulation. The value of reserve assets is assessed daily. Issuers must make available to the public all monthly attestation reports performed by a CPA.
While these standards are comprehensive, NYDFS noted that it will also consider other standards and requirements when approving a stablecoin payout. NYDFS may impose requirements regarding cybersecurity, network design, and assess issuer compliance with bank secrecy/anti-money laundering law.
In sum, NYDFS will review all of the risks and management controls in deciding whether or not to grant approval to new stablecoin issuers. Currently, Paxos Trust Company’s USDP and BUSD, Gemini Trust Company’s GUSD, and GMO-Z.com Trust Company’s ZUSD are all approved under the guideline.
Copyright 2022 K&L GatesNational Law Review, Volume XII, Number 172