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.”