New York Releases Stablecoin Guidance – Fin Tech

On June 8, the New York State Department of Financial Services
(DFS) released its Guidance on the Issuance of U.S. Dollar-Backed
Stablecoins meant to set foundational criteria for USD-backed
stablecoins issued by DFS-regulated entities on the issues of
redeemability, assets reserves and attestations about such
reserves. Here are some of the highlights from the guidance.

• Backing and Redeemability. The stablecoin
  issuer must adopt clear policies that are approved by the DFS and
  confer the right to redeem units of the stablecoin in a timely
  fashion. The stablecoin must be backed by a reserve of assets,
  meaning the value of the reserve is at least equal to the nominal
  value of all outstanding units of the stablecoin as of the end of
  each business day.




• Asset Reserves. The assets that back the
  stablecoin must be segregated from the proprietary assets of the
  issuing entity, and must be held in custody by a FDIC-insured
  institution or a custodian approved by the DFS.




• The Asset Reserves are subject to an examination by a licensed
  CPA.

DFS notes that the risks connected to these factors are not the
only risks DFS considers. DFS looks at a range of potential risks
before authorizing a regulated virtual currency entity to issue a
stablecoin, including risks relating to cybersecurity and
information technology; BSA/AML and sanctions compliance; consumer
protection; safety and soundness of the issuing entity; and the
stability/integrity of the payment system.

Putting It Into Practice: This stablecoin
guidance should be viewed in light of the recent regulatory
activity regarding stablecoins. Recently, Treasury Secretary Janet
Yellen presented the Financial Stability Oversight Council Annual Report before the Senate Banking
Committee about the need for sensible stablecoin legislation (we
have previously discussed this report here). Additionally, the President’s
Working Group on Financial Markets recently published a report and
held a hearing calling for sensible stablecoin legislation (we have
previously discussed the President’s Working Group (PWG) report
and congressional hearing on stablecoins here and here).

This guidance makes clear that a DFS-regulated issuer of a
stablecoin is responsible for understanding and complying with all
applicable laws and regulations, and other state or federal
regulatory agencies.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.