On September 17, the Superintendent of the New York State Financial Services Department (“NYDFS”), Adrienne A. Harris, published new advice on the use of blockchain analysis tools for covered banking institutions considering or already carrying out activities related to virtual currency. Advice notes that blockchain analysis tools can improve compliance programs to mitigate the risks associated with emerging technologies and prevent illegal activities. More specifically, the NYDFS suggests that New York banking organizations, as well as all the branches and agencies of foreign banking organizations approved by the NYDFS (collectively, “covered institutions”), consider the usefulness of blockchain analysis tools for:
- Evaluate exposure to risks through screening for the customer’s portfolio;
- Check the source of incoming funds from virtual asset service providers;
- carry out holistic monitoring of the digital asset ecosystem to assess customer exposure to illegal or sanctioned activity;
- identify and assess the risk of third parties (For example, The counterparties of a virtual asset service provider) with which a customer has committed;
- assess the activity expected in relation to actual activity (For exampledollars thresholds) customers engaging in virtual currency activity;
- Use intelligence from holistic surveillance to further develop the risk assessment of the covered institution and risk appetite; And
- Weigh the risks associated with a virtual currency product or service to offer.
The guidelines note that the list of examples above is not exhaustive and suggest that the covered institutions are planning to take advantage of the blockchain analysis tools to improve compliance programs and risk frames in a manner adapted to appetite and the commercial risk of the institution. The guidelines also stress that the institutions covered must regularly reassess the risk management executives in light of changing commercial models, new types of customers and new entrants on the market.
The announcement is based on the guidelines previously published on the NYDFS industry, including the regulator’s directives in April 2022 on the use of blockchain analysis issued to all the commercial entities in approved virtual currencies and the limited use trust companies allowed to engage in virtual currency in New York. The NYDFS subsequently published its “VCRA directives”, which indicated the expectation of the regulator that all covered institutions seek prior approval before engaging in a new or significantly different virtual currency activity. While the VCRA directives are still in force, each of the banking The regulators have canceled their similar advice this year.
