The New York State Department of Financial Services (DFS) issued regulatory guidance, the first of its kind, for entities issuing USD-backed stablecoins.
The guidance outlines “baseline criteria” for backing and redeemability of stablecoins and establishes the department’s expectations regarding stablecoin reserves and independent audits.
According to Superintendent Adrienne Harris, this “creates clear criteria for virtual currency companies looking to issue USD-backed stablecoins in New York City.”
More specifically, the document states that any stablecoin “must be fully backed by the asset’s reserves” at the end of each business day. In turn, stablecoin issuers are required to have “clear, specific redemption policies” approved in writing by DFS that would give a stablecoin holder the right to redeem it “in a timely fashion equivalent to the US dollar.”
In addition, stablecoin operators are required to separate the assets in their reserves from their proprietary assets, as well as hold them “with US state or federal chartered depository institutions and/or asset custodians.”
Reserves must be held in asset categories such as US Treasury bills, US Treasury bills, notes, as well as reverse repurchase agreements fully collateralized by deposit accounts at US state or federal chartered depository institutions.
The reserves backing stablecoins are also subject to independent audits conducted by a US-licensed Certified Public Accountant (CPA) on a monthly and annual basis.
The guidance specifies that this applies only to stablecoin issuers regulated by DFS and holders of limited purpose trust charters operating in New York State.
Currently, these include Paxos Trust Company, Pax Dollar (USDP) issuer, Binance USD, Binance USD (BUSD), Gemini Trust Company, Gemini Dollar (GUSD) and GMO-Z issuer. .com Trust Company, issuer of the Zytara Dollar (ZUSD).
Regulators strictly scrutinize stablecoins
The issuance of this guidance follows the collapse of the TeraUSD (UST) stablecoin last month, which the department also noted in its press release, referring to it as “recent developments in the stablecoin market and virtual currency space”. has been done.
In light of these developments, the NYDFS also emphasized that the requirements for redeemability, reserves and attestation “are not the only DFS space requirements or may occur on stablecoin issuances, and the risks associated with these factors are not the only risks.” The DFS agrees.”
“The DFS looks at a range of potential risks before authorizing a regulated virtual currency entity to issue a stablecoin, including risks related to cyber security and information technology; network design and maintenance and related technology and operational concerns. Thoughts,” reads the guidance.
The publication of the document comes hot on the heels of Japan becoming the first country in the world to pass legislation clarifying the legal status of stablecoins.
Under the new law, which was passed last week and took effect in 2023, stablecoins must be pegged to the yen or any other fiat currency and guarantee holders must have the right to redeem them at face value.
This was followed by a bipartisan bill unveiled earlier this week by US Senators Cynthia Loomis (R-Y) and Kirsten Gillibrand (D-NY), proposing a new approach to regulating stablecoins.
If passed, this would oblige stablecoin issuers to maintain 100% reserves and ensure stablecoin owners are able to exchange coins for equal dollar amounts at all times.
The bill would also clear a regulatory path for banks and other financial institutions to issue and use stablecoins for payments.
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