Attorney General Letitia James proposed draft legislation on Friday aimed at better regulating New York’s cryptocurrency industry, arguing that the futuristic financial sphere lacks sufficient state supervision.
James’ office said the legislation would give New York State the strongest crypto regulations in the nation, clipping conflicts of interest, requiring audits of crypto exchanges and strengthening the Department of Financial Services’ oversight of digital assets.
“Rampant fraud and dysfunction have become the hallmarks of cryptocurrency and it is time to bring law and order to the multi-billion-dollar industry,” James, a Democrat, said in a statement.
Her blueprint would demand that crypto firms undergo and publish independent audits, bar crypto brokers from borrowing or lending customers’ assets, and empower the attorney general’s office to fine and shutdown firms breaking the law, her office said.
James’ office dubbed the bill the Crypto Regulation, Protection, Transparency, and Oversight Act, or CRPTO. The legislation is set to be reviewed by state lawmakers in the current legislative session, which ends June 8.
New York, which regulates virtual currency sales through its BitLicense system, is already seen as one of the more challenging states to establish crypto businesses. The Department of Financial Services has managed the BitLicense system since 2015.
Gary DeWaal, special counsel at Katten Muchin Rosenman LLP and a former Commodity Futures Trading Commission enforcement lawyer, said he was surprised by James’ proposals and that they appeared redundant.
“New York has already been a leader in this field,” DeWaal said by phone. “It’s just not clear why a new or a supplemental regime is necessary at this point.”
Still, the legislative push has support from city Comptroller Brad Lander, state Comptroller Thomas DiNapoli and some state lawmakers.
“The lack of transparency plaguing the crypto industry causes immense harm to countless investors, especially low-income New Yorkers and people of color,” Lander said in a statement. “We cannot let the crypto industry operate without a basic infrastructure for accountability.”
It was less clear where Gov. Hochul and Mayor Adams, two Democrats, stood on the proposed regulations. Hochul’s office did not immediately provide comment.
A spokeswoman for Adams, Kayla Mamelak Altus, said in a statement that the mayor “supports smart regulations on the industry, but believes that we should not disincentivize those looking to set up shop here in our city or state.”
“The mayor looks forward to continuing to engage with our partners in Albany to ensure New York remains a leader in the innovation economy,” she said in the statement.
Last year, Hochul signed into law a broad two-year statewide pause on new permitting for cryptocurrency production at filthy fossil fuel facilities, making New York the first state to restrict mining of the energy-sapping commodity.
In approving the measure, the governor brushed off objections from crypto lobbyists and Adams, a Bitcoin booster. Adams took a supportive tone after the governor authorized the law.
James has built on her efforts to crack down on the crypto market this year, filing lawsuits against KuCoin and CoinEx, two crypto platforms that her office said had falsely presented themselves as crypto exchanges.
In her statement on Friday, James said “New York investors should have the peace of mind that there are safeguards in place to protect them and their money.”
“These commonsense regulations will bring more transparency and oversight to the industry,” she added, “and strengthen our ability to crack down on those that don’t pay respect to the law.”