On June 8, 2022, the New York State Department of Financial Services (NYDFS) released its first guidance for dollar-backed stablecoins, setting out a series of requirements that must be followed by issuers of dollar-backed stablecoins operating in New York State.
The New York State Department of Financial Services (NYDFS) requires USD stablecoins to be redeemable, that stablecoins must be 100% backed by reserve assets, and an audit proof that those reserves are backed.
The details are as follows:
Adrienne A. Harris, Director of Financial Services: Guidance on Issuing USD-Backed Stablecoins
Global adoption of stablecoins has grown substantially in recent years, with an increasing number of regulators and policymakers showing interest in stablecoin arrangements and applicable rules. Recent public policy discussions have generally addressed prudential authority over stablecoins, as well as specific prudential concerns over stablecoins, such as the existence of appropriate reserves to back stablecoins and the potential for stablecoin “runs” akin to bank runs.
As the prudential regulator of companies engaged in virtual currency business activities in New York, the DFS has imposed requirements, standards, and controls on stablecoins issued by its regulated entities since 2018, when DFS approved the first stablecoin offerings by its regulated virtual currency companies.
When a company applies for a license to engage in virtual currency business activities (“BitLicense”) under New York Banking Act or to charter as a limited purpose trust company, DFS reviews in detail the company’s business plans and product offerings, as well as any inconsistencies with the company’s business model. Stablecoin related aspects are thoroughly evaluated as part of the DFS decision whether to grant a license or concession.
Once licensed, BitLicenseees must obtain written approval from DFS before launching a brand new product, service or activity, a pre-approval requirement that applies to stablecoin offerings.
The DFS imposes similar requirements on New York State limited-purpose trust companies engaged in virtual currency business activities, and as such, these companies also need written approval from the DFS to issue new stablecoins in New York.
The purpose of this guidance on issuing USD-backed stablecoins is to highlight certain requirements that generally apply to USD-backed stablecoins issued under the supervision of the DFS. Specifically, this guide focuses on DFS requirements related to:
- the redeemability of such stablecoins;
- A reserve of assets (“Reserves”) backing such stablecoins; and
- Evidence about the support of these reserves.
Entities that issue stablecoins under DFS supervision or may be interested in issuing stablecoins can use this guide to better understand the baseline requirements they are expected to meet for these three categories related to dollar-backed stablecoins.
It is important to note that while a stablecoin is a virtual currency that can be designed to maintain a stable value relative to any national currency or other reference asset, this guide only applies to dollar-backed stablecoins, and only to DFS regulated virtual currency entities are issued under DFS supervision.
Benchmark Requirements for Issuing USD-Backed Stablecoins
DFS generally imposes the following conditions on all issuance of USD-backed stablecoins subject to DFS approval.
1. Reserve backing and redeemability
- Stablecoins must be fully backed by reserve assets , which means that the market value of the reserve is at least equal to the face value of all outstanding units of the stablecoin at the end of each business day.
- The issuer of the stablecoin (the “Issuer”) must adopt a clear and conspicuous redemption policy, with the prior written approval of DFS, granting any legal holder of the stablecoin the right to redeem units of the stablecoin from the issuer at par in a timely manner. Entitlement , i.e. 1:1 exchange rate back to U.S. dollars, net of ordinary, public charges subject to reasonable, non-onerous conditions, including other applicable legal or regulatory requirements, such as stablecoin holders prior to redemption The issuer can be contacted. The redemption policy should clearly disclose the meaning of “redemption” and the time required for “timely” redemption, or expressly adopt the following default terms:
i. A USD redemption is deemed to have occurred when the issuer has fully processed and begun to transfer funds to the holder’s financial institution or other institution, if requested by the holder, or if funds have been credited to the holder’s cash account . and,
ii. “Just in time” redemption means redemption not more than two full business days (“T+2”) after the business day on which the Issuer receives a “Compliant Redemption Order”. This means that (A) the issuer has received the redemption order on business days and (B) the holder or holder designee has successfully contacted the issuer and all other conditions required to allow compliant redemption have been met.
iii. In exceptional circumstances, DFS has the right to require or allow redemptions not pursuant to subparagraph 1(b) if it deems necessary, if DFS believes that timely redemptions may jeopardize the reserve support requirements of the assets or the orderly liquidation of reserve assets. Meet the conditions for timely redemption.
- Assets in reserves must be separate from the issuing entity’s own assets and must be insured by (i) a Federal Deposit Insurance Corporation (“FDIC”) U.S. state or federally chartered depository institution and/or (ii) by DFS in advance in writing Approved Asset Custodian Custody. Reserve assets should be held by these depository institutions and custodians for the benefit of stablecoin holders, with appropriate account names.
- Reserves should only include the following assets:
i. U.S. Treasury securities purchased by the issuer three months or less from their respective maturity dates.
ii. Reverse Repurchase Agreements are fully collateralized overnight by U.S. Treasury Bills, U.S. Treasury Bills and/or U.S. Treasury Bills, subject to DFS-approved over-collateralization requirements. Such reverse repurchase agreements shall be (A) a three-party or (B) bilateral agreement with a counterparty whom the Issuer believes is sufficiently reputable and whose identity has been submitted in writing to DFS without objection, together with the Issuer’s credit assessment, At least 14 days before the issuer begins entering into a contract with that counterparty.
iii. Government money market funds, subject to DFS-approved caps on the proportion of reserve assets in such funds and DFS-approved restrictions on funds, such as minimum percentage allocations to U.S. government direct obligations and reverse repurchase agreements for such obligations . and,
iv. Deposit accounts with U.S. state or federally chartered depository institutions, subject to DFS-approved restrictions, such as (A) the percentage of deposits or absolute dollar value caps of assets deposited into any given depository institution and/or (B) restrictions based on DFS’s conclusions on the risk characteristics of a particular depository institution, taking into account the amount reasonably required to be held at the depository institution to meet anticipated redemption demand.
- Issuers should manage the liquidity risk of reserves in accordance with the redemption requirements discussed in paragraph 1 above.
3. Audit certificate
- 1. The reserves must be reported at least monthly by an independent certified public accountant (“CPA”) licensed in the United States and applying the standards of the American Institute of Certified Public Accountants (“CPA”) , and the report must meet the standards of the American Institute of Certified Public Accountants (“AICPA”), The CPA and the CPA’s letter of appointment shall be pre-approved in writing by DFS. In these audit certifications, the auditor shall demonstrate that the management of the last business day of the covered period and at least one randomly selected business day of the period has the following assertions: (i) the current day market value at the end of the reserve period, aggregated and broken down by asset class (ii) the end-of-day number of outstanding stablecoin units; (iii) whether the reserves are able to fully support the stablecoins in circulation at these times, and (iv) whether all conditions imposed by DFS on reserve assets (whether in paragraph 2 of this Agreement or otherwise by DFS).
- For the purposes of item 3(a)(iv), the CPA is entitled to rely on the conditions imposed by DFS on reserve assets that apply to each day of the period covered by the issuer’s certification reported to the CPA, together with the issuer’s Evidence to report such a situation. In any event, the specifics of the reserve assets for which the assurance was performed should be included in the certified public accountant’s assurance report.
- 2. In addition to the attestation described in subparagraph 3(a), the issuer shall obtain an annual attestation report from an independent certified public accountant licensed in the United States, using AICPA’s standard of attestation, attesting to management’s assertions, structure, and effectiveness of internal controls. and procedures to comply with the requirements set forth in Items 3(a)(i) through 3(a)(iv) of this document. The certified public accountant and the letter of appointment of the certified public accountant shall be approved in writing by DFS in advance.
- 3. For each certification described in subparagraph 3(a), the issuer must make the CPA’s report available to the public no more than 30 days after the end of the period covered by the certification, and provide a copy in writing to DFS.
- 4. For each annual attestation report described in Item 3(b), the issuer must provide DFS in writing with a copy not more than 120 days after the end of the period covered by the report.
Please note that the above requirements regarding callability, reserves and proofs are not the only requirements DFS imposes or may impose on stablecoin issuers, nor are the risks associated with these factors the only risks DFS considers. DFS considers a range of potential risks before authorizing regulated virtual currency entities to issue stablecoins, including those related to cybersecurity and information technology; network design and maintenance and related technical and operational considerations; bank secrecy laws/anti-money laundering (“ BSA/AML”) and sanctions compliance; consumer protection; security and soundness of issuing entities; stability/integrity of payment systems (where applicable). DFS may impose requirements on stablecoin arrangements to address any of these or any other risks.
This guide is not intended to limit nor limit any powers of DFS or the scope or applicability of any law or regulation. DFS may, at any time in its sole discretion, prohibit or otherwise restrict the issuance or use of stablecoins before or after DFS-regulated issuers begin to issue stablecoins and may require any such issuer to delist, cease or otherwise restrict or curtail Activities related to any stablecoin.
This guidance is not intended to and does not affect an issuer’s obligation to file audited financial statements with DFS pursuant to the New York Banking Act, the Virtual Currency Business Activities Regulations, 23 NYCRR Part 200, the issuer’s regulatory agreement with DFS, or any other relevant laws or regulations. DFS may update this guide from time to time, or withdraw it.
It is the responsibility of each DFS-regulated stablecoin issuer to understand and comply with all applicable laws and regulations, including any applicable legal and regulatory requirements imposed by other state or federal regulators. This guidance is not intended to and does not address such other state, federal or other requirements.
Issuers currently issuing USD-backed stablecoins under DFS oversight are expected to comply with this guidance within three months of the date of publication of this guidance, except for the requirements set forth in subparagraphs 3(b) and 3(d), which These issuers shall comply within a reasonable period of time determined by DFS in its sole discretion.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/a-quick-look-at-the-key-points-of-the-new-york-financial-services-authoritys-usd-stablecoin-guidelines/
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