New NYDFS Division to Oversee Licensing for Cryptocurrency Startups

The New York State Department of Financial Services (NYDFS), the financial regulator for the state of New York, is moving its in-house team supervising cryptocurrency businesses to a new division.

In a statement Tuesday, Linda Lacewell, the newly appointed superintendent, announced the Research and Innovation Division at the Department of Financial Services will track emerging financial technologies and be "responsible for licensing and supervising virtual currencies."

This will include licensing approvals made under the state’s BitLicense, a regulatory regime that governs firms buying, selling or issuing cryptocurrencies to consumers in the state, the agency affirmed in a follow-up request for comment.

"This division will oversee the virtual currency licensing process and will encourage development in the area," the NYDFS said.

Lacewell's predecessor, Maria T. Vullo, opposed regulatory experimentation for non-banking financial firms when leading the agency, marking this research and innovation division as a reprieve from the regulator's formerly heavy hand.

Lacewell said:

“The financial services regulatory landscape needs to evolve and adapt as innovation in banking, insurance and regulatory technology continues to grow."

The NYDFS has been regulating companies in the crypto space in 2015, when its BitLicense program came into effect. The regime has been attacked by industry entrepreneurs including ShapeShift CEO Erik Voorhees, who once said: "Here we are two miles from the Statue of Liberty and you cannot sell CryptoKitties in the state without that license. That’s the absurdity of what’s happened here."

The agency reportedly only granted eight BitLicenses in the first three years following its implementation. Currently over 20 licenses have been granted to cryptocurrency firms.

Lacewell most recently approved two subsidiaries of the crypto exchange Seed CX to operate in the state under the BitLicense framework.

Named executives

Four executives were named in the announcement, all with backgrounds in governmental work.

At the helm of the organization is executive deputy superintendent Matthew Homer, who most recently worked at fintech startup Plaid.

The current director of research, Olivia Bumgardner, will also join the division as deputy superintendent. In her tenure at the state’s financial watchdog, Bumgardner has led initiatives involving digital assets and cybersecurity. Matthew Siegel, attorney in the Antitrust Division of the U.S. Department of Justice, will serve as a deputy superintendent, and Andrew Lucas, director for the Office of Financial Innovation, will serve as counsel.

Speaking to the appointments, Lacewell said:

“This new division and these appointments position DFS as the regulator of the future, allowing the Department to better protect consumers, develop best practices, and analyze market data to strengthen New York’s standing as the center of financial innovation."

New York city via Shutterstock