The New York Department of Financial Services (NYDFS), the primary regulator of digital currency companies in their state, has issued new guidelines to businesses under its jurisdiction, encouraging them to use blockchain analytics services.
In the letter to all virtual currency business entities licensed under the New York Banking Law or “23 NYCRR Part 200”, the government agency highlighted the importance of blockchain analysis for due diligence customers, transaction monitoring and sanctions screening.
NYDFS Superintendent Adrienne Harris wrote that digital currencies pose many compliance challenges due to their unique nature and characteristics. Either way, they also present new possibilities for control measures that take advantage of these new technologies, one of which includes blockchain analytics services.
Harris noted that blockchain analytics services are recommended as a best practice for virtual currency entities in New York.
“VC entities may use third-party service providers or internally developed blockchain analytics products and services for additional control measures, either separately or in combination,” she said.
The advice is in response to a March directive from the office of Kathy Hochul, the governor of New York. Hochul implored the DFS to strengthen its sanctions enforcement against Russia using measures such as purchasing blockchain analysis tools.
New York’s controversial regulatory stance on digital assets
While New York State has one of the most advanced regulatory regimes for the digital currency industry, it has also been embroiled in controversy.
Earlier this month, the state approved a new budget that gives NYDFS additional oversight powers over digital currency companies. The new powers allow NYDFS to collect monitoring fees from licensed digital currency companies.
NYDFS’s regime with digital currency firms, however, remained controversial. The procedures and requirements for obtaining a “BitLicense” from the regulator have been called out as a way to stifle the industry in the state.
Several companies have fled the state, and others, including Coinbase (NASDAQ: COIN), have had to limit their services in the state. Lobbyists fought for the licensing regime to be revised.
Similarly, the state legislature passed a bill banning bulk reward mining with proof of work (PoW). The bill, which was introduced earlier this year, grants PoW block reward miners a two-year moratorium from converting to renewable energy sources or leaving the state.
State lawmakers say mining of PoW block rewards, if left unchecked, will increase the state’s energy consumption, as well as greenhouse gas emissions.
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