State of New York amended its first of a kind crypto license with detailed instructions for stablecoin issuers. Strict requirements as per quick and unconditional redeemability, backing reserves and regular audits are imposed. The permitted reserve types are U.S. Treasury and Government papers as well as federally charted banks.
On June 8th the Department of Financial Services (DFS) of the State of New York published its guidance for issuers of US backed Stablecoins.
Stablecoins were covered by the previous scope of the license as well, but now, in the light of recent stablecoin failures, received detailed requirements for the issuers.
There are three main points:
1. Requirements relating to the redeemability: the issuers must commit to unconditional, fee exempted, timely redemption. “Timely” there is defined as two full business days.
2. Requirements to reserves: can include only U.S. T-bills and T-bill backed Repos, U.S. Government funds, or deposit accounts at U.S. federally chartered banks. T-bills are further restricted by maturity — should be less than 3 months. And, the liquidity of the all portfolio should be managed to satisfy the “Timely” redemption requirement of the Point 1
3. Requirements to regular audits of the above by an independent Certified Public Accountant (CPA). In particular they should check and compare the reserves and the quantity of outstanding stablecoins. CPA reports on these attestations should be done on a monthly basis and made public. There must be also a separate annual attestation report directly to DFS signed by CPA. These requirements do not affect obligations of issuers to submit general audited financial statements to DFS pursuant to the New York Banking Law and the virtual currency business activity regulation.
The above requirements are applicable to licensees of New York State BitLicense under DFS oversight and, interestingly enough, will apply to only those stablecoins that are backed by USD. We could not find information about the guidance for stablecoins backed by other currencies. Considering that most of the issuers that start with USD backed stablecoins then expand to other currencies, there must be some solution there or coming soon.
New York State BitLicense was unique and remains a standard setter for crypto industry. We expect similar guidance in other jurisdictions soon.