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Thursday, June 1, 2023

New York Attorney General Seeks New Crypto Powers for State Regulators

New York Attorney General Seeks New Crypto Powers for State Regulators – Attorney General Letitia James proposed a bill on Friday that would give the New York Department of Financial Services increased power to oversee digital assets. As per the bill, exchanges would be required to compensate customers in case of fraud. “We’re proposing commonsense measures to protect investors and end the fraud and dysfunction that have become the hallmarks of cryptocurrency,” James said.

The proposed legislation by the attorney general of New York could potentially contradict certain fundamental practices of crypto companies, such as offering diverse services like trading platforms, custody, and brokerage. The proposal deems the all-in-one approach as an unlawful conflict of interest. Additionally, the legislation aims to prohibit marketplaces from retaining custody of customer funds.

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Over the past few months, Attorney General James has pursued legal actions against Celsius, KuCoin, and Nexo, contending that several crypto tokens should be considered commodities or securities, although there is a substantial legal ambiguity regarding the extent of existing laws. In a tweet on Friday, James mentioned that the proposed bill would also grant her additional enforcement abilities. 

With a lack of federal supervision over crypto, New York has become the de facto front-runner in the regulation of the industry in the United States, a model that other states like California and Illinois have aimed to emulate but have not yet implemented. According to the tweet by Attorney General James, the proposed legislation aims to subject a broad spectrum of stakeholders in the crypto industry, including crypto issuers, exchange platforms, and digital asset influencers, to comprehensive disclosure requirements. 

The legislation intends to furnish investors with information on potential risks and conflicts of interest. Additionally, crypto firms would be prohibited from borrowing or lending customers’ assets. “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,” a press statement from Friday said.

The New York Department of Financial Services (NYDFS) oversees the state’s crypto operations, including the contentious “BitLicense,” but the endorsement of James’ bill by various members of the state legislature indicates that the regulator may not have had enough power to regulate the industry effectively. “I applaud New York State Attorney General Letitia James for the timely introduction of this legislation to protect New Yorkers from financial harm by establishing a comprehensive regulatory framework for the opaque cryptocurrency market,” State Senator Kevin Parker said in a press statement.

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Alex Mashinsky, the founder of Celsius, recently refuted allegations made by James that he had deceived investors regarding the crypto lender’s operations before it declared bankruptcy last year. Mashinsky claimed that James had selectively picked statements made to investors. James’ bill proposes to formalize NYDFS’ ability to license and supervise crypto brokers, marketplaces, investment advisors, and issuers before commencing their activities in the state.

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