Flaws Identified in New York Regulator's BitLicense Operations Prompt Action

A recent report from the New York State Comptroller reveals significant shortcomings in the BitLicense operations of the New York Department of Financial Services (NYDFS), raising concerns about the regulator's diligence in overseeing crypto firms.

Due Diligence Gaps Exposed

The investigation highlights "limited assurance" that the NYDFS effectively performs its supervisory duties and grants BitLicense applications. Companies engaging in cryptocurrency business in New York are required to apply for either a BitLicense or a charter under local banking law. However, the report suggests a lack of evidence that the NYDFS thoroughly reviews applicants' tax obligations.

Time Delays Raise Red Flags

The report points to substantial delays between information submissions and approvals, with one instance revealing a four-year processing time for an application. This delay raises the possibility that BitLicenses are being granted based on outdated information, undermining the regulator's ability to make informed decisions.

Neglected Oversight Measures

The NYDFS is criticized for neglecting proper fingerprinting processes and failing to ensure crypto firms disclose financial reports. Financial reports are essential for evaluating the soundness of an applicant's business practices, and their absence indicates a gap in oversight.

Comptroller's Recommendations

To address these issues, Comptroller Thomas DiNapoli recommends the development and implementation of enhanced procedures, policies, and safety standards. Thorough documentation of actions taken during the application process is also advised to enhance transparency and accountability.

Response from NYDFS

In response to the findings, the NYDFS acknowledges the need for improvements and asserts that steps have already been taken to refine its processes. However, specific details about these measures are not provided in the report.

The report, spanning back to 2018 and based on a sample of eight licensees, including industry giants like Coinbase, Gemini, and PayPal, highlights the urgency for the NYDFS to address and rectify the identified flaws in its BitLicense operations. These findings underscore the importance of robust regulatory practices to ensure the integrity and reliability of the cryptocurrency industry in New York.