Guidance for stablecoins from New York State

The New York State Department of Financial Services (DFS) has issued new Regulatory Guidance for stablecoins pegged to the US dollar.

New York State releases stablecoin compliance guidance

The guidance was issued by DFS Superintendent Adrienne A. Harris, and sets out the basic criteria for USD stablecoins issued by entities regulated by the DFS itself.   

The new regulatory guidance addresses four issues in particular. 

The support of tokens

The first is the support of tokens and their full redeemability in USD. Indeed, according to this guidance, USD stablecoins must be fully backed by reserves. Thus, the market value of the reserve must be at least equal to the face value of all outstanding units of the stablecoin at the end of each business day.

The issuer must also adopt clear and conspicuous redemption policies approved in advance by the DFS. This gives each stablecoin holder the legal right to redeem its tokens at par with US dollars. 

The structure of reserves

However, the guide also addresses the issue of the type of reserves, which must be separate from the assets owned by the issuer, and must be held in custody with US depositaries. 

The reserve can only be Treasury bills or repos. 

Moreover, it has to be audited at least once a month by an independent Certified Public Accountant (“CPA”) authorized in the US, according to the attestation standards of the American Institute of Certified Public Accountants (“AICPA”). 

In short, there is nothing really new other than the attestation of the obligation to comply with these requirements in order to operate in New York State in accordance with the law. 

Cybersecurity level of the issuer

DFS also examines other criteria before authorizing a regulated entity to issue a stablecoin, including those related to cybersecurity and information technology risks, as well as technology and anti-money laundering. 

A clear regulatory framework for stablecoin issuers

The purpose of the new regulatory guidance is clearly to set out the basic mandatory requirements for issuers of USD stablecoins authorized by DFS to operate in New York State. However, it does not apply to USD stablecoins issued by entities not regulated by DFS. 

To date, USDP, BUSD, GUSD and ZUSD stablecoins are regulated by DFS. 

DFS also makes it known that the information contained in the guide is not intended to be exhaustive and that it reserves the right to update it from time to time for any reason. 

Superintendent Harris stated: 

“Since DFS approved the first USD-backed stablecoins for issuance in New York in 2018, our regulated entities have had to meet conservative reserve requirements and provide routine attestations to protect consumers and ensure the stability of the coins issued. Leveraging our years of expertise in the space, our Regulatory Guidance today creates clear criteria for virtual currency companies looking to issue USD-backed stablecoins in New York”.