New York state announces another upgrade to its virtual currency monitoring capacity

Regulation

The New York State Department of Financial Services (NYDFS) has announced enhancements to its ability to detect illegal activities with virtual currency among the entities its regulates. The new capacities are part of its efforts to keep pace with the industry and respond proactively to the virtual currency market, it said.

The NYDFS released a short statement on its new abilities on Feb. 21 that contained no specifics about the “new insider trading and market manipulation risk monitoring tools.” However, the statement promised:

“The new enhancements will provide the Department with additional capabilities to detect potential insider trading, market manipulation, and front-running activity associated with Department-regulated entities’ and applicants’ exposure or potential exposure to listed virtual currency wallet addresses.”

NYDFS superintendent Adrienne Harris said, “These tools will help us combat financial crime and fraud, hold regulated entities accountable, and further strengthen our national leadership in virtual currency supervision.”

Announcements of unspecified new technological abilities seem to be part of the NYDFS enforcement playbook. The agency announced “expedited procurement of additional blockchain analytics technology” last year as part of its enforcement of sanctions against Russian companies after that country’s invasion of Ukraine.

The agency also regularly issues guidance for the entities it regulates, advising banks on engaging with cryptocurrencies in December and claiming to be the first regulator to release guidelines for stablecoin issuance in June.

The NYDFS was recently instrumental in Blockchain infrastructure platform Paxos Trust’s decision to stop minting the Binance USD (BUSD) stablecoin after it opened a probe of the coin. Earlier this year, it extracted a $100 million settlement from Coinbase for allegedly keeping a backlog of 100,000 suspicious transaction alerts. In August, it reached an agreement with Robinhood Crypto for a $30 million penalty for anti-money laundering compliance issues.

Related: Binance withdrawals and BUSD redemptions surge post Paxos crackdown

In addition, the NYDFS is reportedly investigating Gemini’s Earn lending program.

New York state introduced its virtual currency BitLicense, well known for its strict requirements, in 2015. That licensing regime has been controversial, with even New York City mayor Eric Adams criticizing it as “stifling.”