The New York Department of Financial Services (NYDFS) has published guidance that requires banking firms under the State of New York to seek advance permission from it before they or their authorized third-party agents engage in cryptocurrency-related activities.

According to the state financial regulator, the rule also extends to the branches and agencies of foreign banking organizations under its supervision. In addition, the Department noted that such organizations are to provide information related to their business plan, risk management, corporate governance and oversight, consumer protection, financials, and legal and regulatory analysis, in their permission proposals.

Guidance Clarifies Crypto Permission for Banks

Furthermore, the guidance requires firms that are already into digital asset-related activities to immediately inform the regulator of such activities if they are yet to do so. In this regard, the regulator noted that it will seek further information and put forward supervisory conditions as needed.

The guidance comes at a time the cryptocurrency is battling with the collapse and bankruptcy of crypto exchange, FTX, whose Founder and former CEO, Samuel Bankman-Fried was arrested earlier this week and is facing criminal charges in the United States for allegedly mishandling customer’s funds.

NY Regulator Curtailing Crypto Risks

Adrienne Harris, NYDFS’ Superintendent, explained that the guidance is critical to protect the funds of consumers and keep banking firms regulated by the State of New York resilient and competitive.

“The Department takes seriously the potential risks that novel activities, including in particular virtual currency-related activities, may pose to Covered Institutions [regulated banks], to consumers, and to the market in general, and the Department will make a comprehensive assessment of the information presented under this Guidance to determine whether any proposed activity would — based on the facts and circumstances presented and including the risk mitigation measures the Covered Institution has developed to support the activity — be appropriate for a Covered Institution to undertake,” the state regulator explained in the guidance.

The regulator pointed out that it developed the guidance after conducting a robust analysis of the existing regulatory landscape and market trends. In addition, the Department said it consulted with advocates, other state and federal regulators, industry, and academics, to develop the rules.