NEW YORK — Legislation has been introduced to tighten regulations on the cryptocurrency industry.
New York Attorney General Letitia James announced new legislation on the cryptocurrency industry that aims to protect investor, consumers and the economy.
The bill is meant to increase transparency, eliminate conflicts of interest, and add measures to protect investors. Those measures would be consistent with regulations on other financial services.
This includes public audits of cryptocurrency exchanges and measures to prevent conflicts of interest by stopping individuals from owning the same companies.
“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 said.
“New York investors should have the peace of mind that there are safeguards in place to protect them and their money. All investments are regulated to account for every penny of investors’ money — cryptocurrency should be no exception. These commonsense regulations will bring more transparency and oversight to the industry and strengthen our ability to crack down on those that don’t pay respect to the law.”
The bill has three main objectives.
First, the prevention of conflicts of interest would be achieved by:
- Preventing common ownership of crypto issuers, marketplaces, brokers, and investment advisers and preventing any participant from engaging in more than one of those activities;
- Preventing crypto brokers and marketplaces from trading for their own accounts;
- Prohibiting marketplaces and investment advisers from keeping custody of customer funds;
- Prohibiting brokers from borrowing or lending customer assets; and
- Prohibiting referrals from marketplaces to investment services for compensation.
The bill will also work to requiring public reporting and financial statements, in addition to:
- Undergo mandatory independent auditing and publish audited financial statements;
- Provide investors with material information about issuers, including risks and conflict-of-interest disclosures;
- Require marketplaces to establish and publish listing standards; and
- Require cryptocurrency promoters to register and report their interest in any issuer whose crypto assets they promote.
The new legislation will also aim to increase protections for investors through:
- Enacting and codifying “know-your-customer” provisions, meaning brokers would have to know essential facts about their customers, and requiring crypto brokers and marketplaces to only conduct business with firms that comply with KYC provisions;
- Banning the use of the term “stablecoin” to describe or market digital assets unless they are backed 1:1 with U.S. currency or high-quality liquid assets as defined in federal regulations; and
- Requiring platforms to reimburse customers who are the victims of unauthorized asset transfers and transfers resulting from fraud.
“The cryptocurrency industry is in need of regulation and oversight,” said New York State Comptroller Thomas P. DiNapoli in a news release.
“As the financial capital of the world, New York must lead these efforts. I applaud Attorney General James for taking decisive action to protect the public.”
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