Amid the collapse of the Terra algorithmic stablecoin, the New York watchdog has focused on regulations on said crypto assets.
The New York Department of Financial Services (DFS) has published a new set of guidelines for BitLicense-regulated cryptocurrency companies that issue stablecoins backed in US dollars.
Stablecoin Regulations for BitLicense Businesses
According to the New York regulator, new rules published on Wednesday (June 8, 2022) seek to emphasize certain requirements that apply to dollar-pegged stablecoins issued by DFS-regulated entities. The guide focuses on support and redeemability, reserve requirements, and independent audits.
For backing and redeemability, the DFS said stablecoins must be backed by a reserve of assets. In addition, the issuer must have clear redemption policies approved by the New York watchdog and must segregate assets in reserve from its own holdings.
Reserve assets must comprise US Treasury bills, reverse repurchase fully collateralized by such bills, notes or bonds.
In addition, the assets in the reserve “must be held in custody with depository institutions and/or asset custodians licensed by the state or federal government of the United States.” The guideline also stipulates that reserves must undergo a monthly audit by an independent United States-licensed Certified Public Accountant (CPA).
Meanwhile, the DFS noted that the rules do not limit the power of the regulator. An excerpt from the guideline read:
“DFS may, at any time and in its sole discretion, prohibit or limit the issuance or use of a stablecoin before or after a DFS Regulated Issuer begins issuing the stablecoin and may require such Issuer to remove, stop or limit or otherwise reduce activity with respect to any stablecoin.”
According to a statement from New York State DFS Superintendent Adrienne A. Harris:
“Leveraging our years of experience in the space, our Regulatory Guidance today creates clear criteria for virtual currency companies looking to issue USD-backed stablecoins in New York.”
More countries interested in the stablecoin framework
Regulators in different jurisdictions, especially in the United States, have been working to regulate the stablecoin market. But the need for a regulatory framework for stablecoins seems to have intensified following the collapse of Terra (LUNA) and UST.
The UK government recently proposed some amendments to existing rules that would mitigate the risks associated with failed stablecoin projects. SEC Commissioner Hester Peirce also noted that there could be an accelerated push for stablecoin guidance.