REGULATIONDEVELOPMENT

New York State Releases Stablecoin Guidance, Daily Reserves Must at Least Match Liabilities, USDP, BUSD Affected by Regulation

share
New York State Releases Stablecoin Guidance, Daily Reserves Must at Least Match Liabilities, USDP, BUSD Affected by Regulation

The New York State Department of Financial Services (DFS), known for its stringent regulations, has issued new compliance requirements for issuers of stablecoins pegged to the US dollar. These regulations will be based on the informal policies that the regulatory agency has been implementing since 2018, and stablecoins like USDP, BUSD, GUSD will be subject to these standards.

Three Requirements

According to the Stablecoin Guidance released by The New York Department of Financial Services (DFS), it will focus on the following requirements:

  • Redeemability: Stablecoins must be backed by "fully reserved" assets and proof.
  • Reserve Requirements: Fully reserved funds must be available at the end of each business day.
  • Independent Audits: Issuers' redemption policies must be pre-approved in writing by DFS and subject to monthly independent audits by a U.S.-licensed independent accounting firm.

Basic compliance includes adherence to the Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) rules, with issuers required to fulfill user redemption requests within two days (T+2). Additionally, issuer reserves must be held separately from their assets and consist of U.S. Treasury securities and deposits with federally chartered institutions.

Specifically, the compliance process for issuing stablecoins in New York State is as follows:

  • Issuers apply for a virtual currency business license "BitLicense" under New York banking law.
  • Even with a limited purpose trust company charter, approval from DFS is required.
  • DFS reviews the company's business and products.
  • Products, services, and activities can be launched only after DFS approval.

No Impact on Two Major Stablecoins

The guidance applies only to issuers regulated by DFS or institutions that have obtained a limited purpose trust charter in New York State. Two major stablecoins, USDT and USDC, are not affected. Those affected by the new guidance include:

  • Paxos Trust Company｜Pax Dollar (USDP)
  • Gemini Trust Company｜Gemini Dollar (GUSD)
  • GMO-Z.com Trust Company｜Zytara Dollar (ZUSD)
  • Binance USD (BUSD)

Both USDP and BUSD are issued by Paxos Trust Company. Paxos stated that as an issuer, they have always segregated reserves from their assets, a practice already in place before the new guidance. All issuers are expected to comply with these requirements.