New York State Comptroller Raises Concerns Over BitLicense Management by NYDFS

New York State Comptroller Raises Concerns Over BitLicense Management by NYDFS

Crypto News – The Office of the New York State Comptroller, led by Thomas DiNapoli, has voiced significant concerns regarding the oversight and management practices of the New York Department of Financial Services (NYDFS) in handling BitLicense applications. BitLicense, a regulatory framework for digital currency operations in New York State, is a critical aspect of the NYDFS’s responsibilities.

In a detailed report issued in January, Comptroller DiNapoli expressed reservations about the effectiveness of NYDFS’s supervision in this area. He articulated a mere “limited assurance” in the department’s capability to competently oversee BitLicense operations, a sentiment that raises questions about the robustness of NYDFS’s regulatory oversight in the broader financial sector.

A key issue highlighted in the report is the insufficient rigor in the security vetting of potential licensees. The investigation led by DiNapoli‘s team unearthed that two out of eight randomly selected BitLicense applicants had not completed essential steps in the fingerprinting process before their applications were approved.

Further, the NYDFS has been unable to demonstrate that it adequately verifies applicants’ compliance with tax obligations and minimum net worth requirements. This gap in the verification process presents potential risks in the financial oversight mechanism.

Additionally troubling is the discovery of significant delays in mandatory examinations. The NYDFS is required to conduct biennial reviews of licensees’ financial health and operational soundness. However, the Comptroller’s office found instances where these examinations were delayed by up to three years, with some Anti-Money Laundering documentation submitted by companies becoming outdated before a BitLicense was granted.

In light of these findings, Comptroller DiNapoli has recommended the implementation of formalized processes for examination follow-ups, ensuring more rigorous and timely oversight.

The NYDFS, responding to the audit, acknowledged these shortcomings as areas needing improvement. In April 2023, the department introduced a BitLicense Examination Findings Tracking Procedure, aimed at enhancing the follow-up process for examination findings. However, according to the Comptroller, this procedure has so far been applied to only one out of the eight sampled licensees.

Since 2015, crypto firms seeking to operate in New York have been mandated to secure a BitLicense through the NYDFS. The current roster of licensees comprises 32 entities, including prominent names like BitPay, Circle, Coinbase, Gemini, Paxos, and PayPal.

The Office of the Comptroller has reached out for further comments on these developments, highlighting the evolving landscape of digital currency regulation and the critical need for robust oversight mechanisms.