New York DFS Authorizes Two Stablecoins
Time 2 Minute Read

On September 10, 2018, the New York Department of Financial Services (“DFS”) authorized Gemini Trust Company and Paxos Trust Company to each offer a price-stable cryptocurrency, also known as a stablecoin, pegged to the U.S. dollar. Both Gemini and Paxos hold limited purpose trust company charters under the New York Banking Law and are authorized to offer services for buying, selling, sending, receiving and storing virtual currency. Gemini is controlled by the Winklevoss brothers, whose application for a Bitcoin ETF was recently denied by the SEC.

The DFS’s press release announcing approval of the new virtual currency products described a lengthy series of operating conditions intended to protect consumers, the violation of which could lead to regulatory sanctions including charter forfeiture. Both Gemini and Paxos are required to:

  • Ensure that authorized stablecoins are fully exchangeable for a U.S. dollar, with conditions to ensure monitoring and recordkeeping.
  • Implement, monitor and update effective risk-based controls and appropriate BSA/AML and OFAC controls to prevent the stablecoins from being used in connection with money laundering or terrorist financing.
  • Implement, monitor and update effective risk-based controls to prevent and respond to any potential or actual wrongful use of stablecoin, including but not limited to its use in illegal activity, market manipulation or other similar misconduct.
  • Comply with DFS’s transaction monitoring and cybersecurity regulations.
  • Post terms and conditions in a prominent location on both Gemini’s and Paxos’s respective websites, and in any other form or manner required by DFS, that warns consumers that any stablecoin and the underlying fiat currency:
    • may be forfeited if the stablecoin has been, or is being used for, illegal activity;
    • may be subject to forfeiture to, or seizure by, a law enforcement agency in the event that there is a legal order or other legal process; and
    • in the event of freezing, forfeiture to or seizure by a law enforcement agency, may be wholly and permanently unrecoverable and unusable and may, in appropriate circumstances, be destroyed.
  • Maintain policies and procedures for consumer protection and to promptly address and resolve customer complaints.
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    Scott brings in-depth knowledge of SEC policies, procedures and enforcement philosophy to each representation. Scott regularly advises clients across a broad sector of the economy facing sensitive reporting, compliance and ...

The Hunton Andrews Kurth Blockchain Blog features opinions and legal analysis as we follow the development and use of distributed ledger technology known as the blockchain.

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