New York strengthens protections for cryptocurrency investors with improved complaint handling

The New York State Department of Financial Services (NYDFS) has issued new guidance requiring companies engaged in virtual currency activities to have robust policies and procedures in place to respond quickly to customer service reports and complaints.

The directive, issued by Superintendent Adrienne Harris, highlights the need to provide consumers with a transparent and timely resolution process through virtual currency entities (VCEs). The state’s definition of VCE includes companies with a New York BitLicense, as well as companies incorporated as limited purpose trust companies under New York banking law, generally including licensed cryptocurrency businesses in New York.

Emphasis on positive customer experiences

Superintendent Harris stressed that the guidance aims to ensure a positive customer experience, to the benefit of both consumers and the businesses involved. She stated: “Consumers have the right to a transparent and timely process for complaints and questions to be answered, regardless of the company or product in question.” The guidelines are part of the VOLT initiative to strengthen the regulator’s oversight of the virtual currency sector.

Under VCE guidelines, they must offer their customers accessible channels, such as telephone, email or chat, to submit complaints and service requests. These companies are also required to regularly inform customers about the status of their inquiries, including an estimated resolution date.

Additionally, NYDFS requires VCEs to conduct a quarterly review of applications and complaints received, a process that will be subject to regulatory review. Companies must also submit related policies and procedures for NYDFS review by November 1, 2024.

Historical context and impact of BitLicense

The NYDFS actively regulates the cryptocurrency sector in New York, establishing the BitLicense system in 2015. Under this regulation, many companies, including well-known names such as Coinbase Inc., Circle Internet Financial, LLC, and Robinhood Crypto, obtained virtual currency licenses. However, stringent regulations have also forced some companies to leave the New York market.

The NYDFS statement further noted that the information contained in the guidance is not exhaustive and may be updated in response to new information or market changes. The Guidelines are also not intended to limit the application of any existing law or regulation.

This tightening of regulations follows extensive research by the NYDFS, which included consultation with key stakeholders. Superintendent Harris has previously debunked theories suggesting a concerted effort by U.S. regulators to isolate the cryptocurrency industry from the banking system, describing such claims as “ludicrous” and “stupid.”

New York attack on cryptocurrencies

As a result, New York Attorney General Letitia James has promised to step up enforcement against non-compliant crypto companies. This commitment was demonstrated in the recent landmark $2 billion settlement with cryptocurrency lender Genesis over allegations that the company misled investors regarding its Gemini Earn program, leading to significant financial losses.

This settlement, announced by James, is the largest of its kind in New York’s legal history and requires Genesis to repay the ill-gotten funds and cease operations in New York.

Since the 2018 election, Attorney General James has vigorously policed ​​the cryptocurrency market, launching several crackdowns to ensure cryptocurrency companies comply with established financial regulations.

The NYDFS also imposed fines of over $177 million on cryptocurrency companies that failed to comply with the law. James reiterated her stance on regulatory compliance, stating: “Crypto companies must follow the same rules as everyone else. We will prosecute those who do not.”

The changing regulatory landscape in New York underscores the state’s commitment to providing a safe and compliant environment for cryptocurrency transactions, reflecting the increasing scrutiny and regulatory demands facing the entire cryptocurrency industry.