New York DFS “Needs to Do More” on BitLicense program: State Comptroller

Thomas DiNapoli, New York State Comptroller, highlighted that there is a potential deficiency in the state’s financial regulator’s supervision of virtual currency licenses.

The Office released a report stressing that the Department of Financial Services (DFS) “needs to do more” on the BitLicense program. The comptroller’s office questioned the program’s lack of financial stability and cybersecurity standards.

BitLicense is a landmark cryptocurrency regulatory regime adopted by the NYDFS in June 2015, aiming to provide a well-regulated way to access digital currencies for New York residents.

“We found there is limited assurance that DFS is adequately performing its oversight responsibilities related to the application for and supervision of BitLicenses in the state,” the report read.

According to the comptroller’s office findings, two of the eight sampled BitLicense applicants did not fully complete the fingerprinting process.

The report also discovered “lags between the submission of required anti-money laundering risk assessments and the granting of licenses.” This is because one application approval takes nearly 4 years after the assessment, creating the possibility that outdated information is used to approve licenses.

Additionally, the comptroller also criticized DFS for not ensuring that licensees submitted all required financial reports used to assess the safety of their business operations.

“BitLicensees were also not in compliance with DFS’s cybersecurity regulations,” it added.

Bloomberg reported Monday that the DFS updated the cybersecurity standards for all regulated entities in November. Despite that, the comptroller urged further action to address the identified cybersecurity concerns.

Comptroller’s Recommendations

The comptroller stressed that DFS “needs to do more to ensure BitLicenses are granted to financially stable applicants and ensure the safety and soundness of licensees’ ongoing operations.”

Furthermore, the Supervision team must review both quarterly and annual reports to ensure that a BitLicense is compliant, it added.

The report is the result of the comptroller’s audit that took place from July 2018 to July 2023.

So far, the regulatory department has granted virtual currency licenses to more than 20 entities including Bakkt, bitFlyer, Bitpay, Coinbase, among many.

In November, the NYDFS introduced new guidelines on the listing and delisting of crypto assets to heighten the standards for the current crypto listing and delisting process.