Regulation: State

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At a time when states are jockeying for position to become digital asset and cryptocurrency hubs and we’ve witnessed turmoil and regulatory uncertainty within the cryptoasset industry, the New York Department of Financial Services (“NYDFS”) on December 15, 2022 released its final Guidance (the “Guidance”) to banking organizations seeking to engage in “new or significantly different” virtual currency-related activities. As stated in the Guidance, “virtual currency-related activity” includes all “virtual currency business activity,” as defined under the BitLicense regulation (23 NYCRR § 200.2(q)), as well as “the direct or indirect offering or performance of any other product, service, or activity involving virtual currency that may raise safety and soundness concerns for the Covered Institution or that may expose New York customers of the Covered Institution or other users of the product or service to risk of harm.” At a high level, the Guidance reminds state-regulated banks (“Covered Institutions”) that, as a “matter of safety and soundness,” they must apply for approval before engaging in digital asset-related activities and outlines the types of information the NYDFS deems most relevant in assessing a proposal and the potential risks that such virtual currency-related activities may pose for the institution, consumers and the market in general (note: The Guidance expressly states that it does not interpret existing laws nor take a position on the sorts of activities that may be permissible for Covered Institutions to take).

Notably, the Guidance further increases the scope of NYDFS oversight by expanding the types of virtual currency activity requiring approval: “virtual currency-related activities” must receive approval, whereas previously only “virtual currency business activity” required prior approval from the NYDFS.  In a footnote, the Guidance explains the difference – virtual currency-related activity” essentially means any “virtual currency business activity” as defined under the BitLicense rules, plus certain additional activities that the NYDFS believes might raise “safe and soundness concerns.”

The U.S. Securities and Exchange Commission (“SEC”) issued a statement in response to the Wyoming Division of Banking’s No-Action Letter on Custody of Digital Assets and Qualified Custodian Status.

in October, the Wyoming Division of Banking granted Two Ocean Trust, a Wyoming-chartered public trust company, “no action” relief setting…

On March 17, 2020, the governor of Hawaii announced the Digital Currency Innovation Lab, a collaborative effort between Hawaii’s Department of Commerce and Consumer Affairs, the Division of Financial Institutions (DFI) and Hawaii Technology Development Corporation, to regulate business transactions utilizing cryptocurrencies. The two-year pilot program allows selected companies to…

On July 23, the New York State Department of Financial Services (the “DFS”) issued a press release announcing the establishment of a new Research and Innovation Division (the “Division”) within the DFS.

The Division will take on the responsibility of licensing and supervising entities engaged in “virtual currency business activity”…

Utah’s governor recently signed into law H.B. 378, which created a sandbox program for companies providing “innovative financial products or services” in the state. The program, run by Utah’s Department of Commerce, requires companies to apply and meet certain requirements in order to participate in the sandbox. Importantly, H.B.…

On January 24, 2019 the New York Department of Financial Services (the “DFS”) announced that it had granted BitLicenses to Robinhood Crypto, LLC and Moon Inc. (d/b/a LibertyX). These are the fifteenth and sixteenth BitLicenses granted by the DFS since the final BitLicense rules were released in 2015.

Robinhood Crypto…

This past summer, Ohio adopted legislation (SB220) that primarily provides for a legal safe harbor from certain data-breach related tort claims to covered entities that implement a specified cybersecurity program that “reasonably conforms” to a recognized cybersecurity framework for the protection of personal information and “restricted information” or comply with certain industry-specific federal privacy laws. This legislation is intended incentivize businesses to adopt heightened levels of cybersecurity through voluntary action.

Beyond cybersecurity, SB220 also includes language amending Ohio’s version of the Uniform Electronic Transactions Act (UETA) to incentivize blockchain investment and innovation in the state by allowing transactions recorded on the blockchain to be recognized under it. Ohio’s UETA generally stipulates that records or signatures may not be denied legal effect solely because they are in electronic form and that a contract may not be denied legal effect because an electronic record was used in its formation (a discussion of the extent to which any provision of Ohio’s UETA is preempted by the Federal E-Sign Act (15 U.S.C. § 7001) is beyond the scope of this post). In pertinent part, SB220 amends the definition of “electronic record” under the UETA to provide that “a record or contract that is secured through blockchain technology is considered to be in an electronic form and to be an electronic record.” It also amends the definition of “electronic signature” to clarify that a signature that is “secured through blockchain technology is considered to be in an electronic form and to be an electronic signature.” While one could argue that signatures secured using blockchain are already presumably valid under the UETA, such a law expressly takes up this issue and signals the state’s pro-blockchain stance.