New York DFS boosts digital currency monitoring capabilities to crack down on bad actors

The New York State Department of Financial Services (DFS) has heightened its capacity to detect digital currency fraud among market participants, as it hints at tighter controls for the nascent industry.

DFS Superintendent Adrienne A. Harris confirmed the agency’s internal systems upgrades, focusing on cracking down on insider trading and market manipulation in the digital currency space. Harris pointed out that protecting New York’s investors from FTX-like implosions fuelled the new system upgrades.

“This is a significant step in our supervision of the virtual currency industry as it continues to quickly transform and mature,” said Harris. “These tools will help us combat financial crime and fraud, hold regulated entities accountable, and further strengthen our national leadership in virtual currency supervision.”

Details of the enhancements were not provided in the press release and shielding information of upgrades form part of the DFS’ playbook. A keen example was the regulator’s announcement that it had purchased “additional blockchain analytics technology” to supervise sanctions imposed on Russia, with further details not being provided.

The DFS has been active in policing the digital currency ecosystem since 2017, having issued policy guidelines on using blockchain technology analytics and stablecoins. Aside from issuing directions, the regulator also has a streak of enforcement actions under its belt, with the most famous being its $100 million settlement arrangement with Coinbase (NASDAQ: COIN).

In 2022, the financial watchdog reached a $30 million arrangement with Robinhood (NASDAQ: HOOD) for violating its existing Anti-Money Laundering (AML) rules. Currently, the DFS is investigating Gemini over its Earn lending program as it continues to flex its regulatory muscles.

New York being the toughest place for digital assets in the US

New York has earned itself the reputation of being a difficult place for digital assets in the U.S. by virtue of its tough stance toward the sector. In 2015, the state introduced a licensing regime for digital currency service providers known as BitLicense that has been criticized as “stifling.”

Given its tough requirements, the DFS proposed a conditional license framework to allow smaller startups to offer their services in New York. However, only a handful of firms have since been granted operational licenses.

Miners have not had it any easier as the state recently imposed a two-year mining moratorium for Proof-of-Work (PoW) digital currencies.

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