New York Attorney General Proposes New Crypto Regulatory Act

New York Attorney General (AG) Letitia James has proposed a new state bill to regulate the cryptocurrency industry further, as she believes the space is enduring “rampant fraud and dysfunction”. This new set of crypto regulations would impose independent public audits of crypto exchanges, ensuring that New York residents do not lose their cryptocurrency investments to deceptive business practices.

On Friday, May 5th,  the office of the New York Attorney General released a press statement, disclosing the plans to augment state regulations over cryptocurrency and crypto-related organizations. James proposed the “Crypto Regulation, Protection, Transparency, and Oversight” (CRPTO) Act as a new piece of crypto legislation.

James described the CRPTO Act as “the strongest and most comprehensive” batch of regulations over the crypto industry in the United States. The AG’s office noted that the proposed bill, if passed, will safeguard investors, consumers, and the broader economy.

In her proposal, the attorney general suggested that the state of New York impose independent public audits of crypto exchanges and prohibit residents from owning brokerages and cryptocurrency-issuing companies to prevent conflicts of interest. Additionally, the bill would mandate crypto organizations to reimburse customers for fraud-related losses.

The CRPTO Act is quite comprehensive, as it also tackles the regulation of the stablecoin ecosystem. The proposed state law specifies that firms should only be allowed to market a digital asset as a stablecoin if it is backed one-to-one by “U.S. currency or high-quality liquid assets as defined in federal regulations”.

The CRPTO proposal will make it to the floor of the New York State Senate and Assembly during the 2023 legislative session. If passed, it would give the attorney general’s office the authority to issue subpoenas for violations of the regulations and impose civil penalties (up to $10,000 for individuals and $100,000 for organizations).

Following the huge collapses that rocked the crypto industry in 2022, various federal agencies, particularly the Securities and Exchange Commission (SEC), have turned up the heat on the digital asset industry this year. In response, several crypto organizations have bemoaned the lack of clarity clouding cryptocurrency regulations in the country.

Interestingly, not only the Federal regulatory authorities are currently on high alert. State regulators, like the New York AG’s office, have also intensified regulatory efforts on the crypto industry.

For instance, the New York Attorney General’s office filed a lawsuit against the crypto platform KuCoin in March, alleging the firm provided brokerage services without properly registering. In February, the New York Department of Financial Services (DFS) ordered Paxos to stop minting stablecoin BUSD, stating that the dollar-pegged asset is an unregistered security.

With the proposed set of crypto regulations by attorney general Letitia James, it doesn’t appear that the New York regulators are slowing down in their clampdown on the crypto industry this year. 

In any case, the cryptocurrency industry continues to show strength, with a market cap of $1.177 trillion.