New York state is enhancing cryptocurrency monitoring

The New York State Department of Financial Services (NYDFS) has made plans to improve its capabilities to pick up on illicit crypto-related activity. According to an announcement, the new tools aim to make sure regulation and the right investor protective methods are in place to keep up with the ever growing cryptocurrency industry with the intention of proactively responding to the virtual currency market.

The NYDFS did not specify any sort of details about the “new insider trading and market manipulation risk monitoring tools” in its announcement. However, the authority promised that the “new enhancements will provide the Department with additional capabilities to detect potential insider trading, market manipulation, and front-running activity associated with Department-regulated entities’ and applicants’ exposure or potential exposure to listed virtual currency wallet addresses.

NYDFS superintendent Adrienne Harris noted:

These tools will help us combat financial crime and fraud, hold regulated entities accountable, and further strengthen our national leadership in virtual currency supervision.”

It’s worth noting that the NYDFS often offers guidance for institutions that it’s involved in regulating, including exchanges that are involved in supporting cryptocurrencies, issuing and creating stablecoins and decentralised finance (DeFi) assets. The agency also announced “expedited procurement of additional blockchain analytics technology” in 2021 as part of its sanctions against Russian companies after the country’s invasion of Ukraine.

Regulation of United States crypto institutions

The NYDFS has been working hard to set up regulations and enforce sanctions in the cryptocurrency space. Blockchain infrastructure platform Paxos Trust was slapped with a lawsuit before decided to stop minting the Binance USD ($BUSD) stablecoin. The agency has also reached settlements with Robinhood Crypto and Coinbase for Anti-Money Laundering (AML) compliance issues.

The agency is also currently investigating the Winklevoss-founded Gemini’s Earn lending program. The Earn program allows Gemini clients to earn interest on their cryptocurrency holdings and has come under scrutiny by the authority over issues with securities law.

In addition to NYDFS’s efforts, Kraken is also under investigation by the US Commodity Futures Trading Commission (CFTC). The probe is over whether Kraken allowed US customers to trade derivatives on its platform, which is currently illegal by the laws under the CFTC. The CFTC is also reportedly investigating the decentralised finance platform Uniswap for allowing US citizens to use its exchange to trade unregistered securities.

Back in 2015, New York State introduced the BitLicense, a registration requirement for digital currencies in 2015. The licensing regime has been the subject of much controversy and divisive opinions as a result of how strict the requirements are for firms to be operating lawfully. Years later, the legislation has formed part of the crypto infrastructure despite it being referred to as “stifling”” by the New York City Mayor.

The cryptocurrency market has been growing rapidly over the last few years, with both individuals and institutions adopting beyond Bitcoin ($BTC). As a result of the increasing industry, regulators are trying to keep up with the pace of the market while both preventing illegal activities and without impeding innovation. The investigations at play are a mark that the industry, while decentralised, is far from immune to regulatory scrutiny.

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