New York’s financial services regulator has published new guidance on stablecoins, outlining what the state expects from issuers. Stablecoins must be fully backed by a reserve of assets equivalent to the face value of each stablecoin unit, and they must always be redeemable for U.S. dollars.
New York’s financial services regulator announced Wednesday that U.S. dollar-backed stablecoins exchanged in the state must now meet strengthened conservative reserve standards.
The New York Department of Financial Services (NYDFS) has issued guidance outlining baseline criteria that stablecoin issuers operating under the agency’s jurisdiction must achieve.
At the issuing of the advisory, Superintendent Adrienne A. Harris said, “Since DFS approved the first USD-backed stablecoins for issuance in New York in 2018, our regulated entities have had to meet conservative reserve requirements and provide routine attestations to protect consumers and ensure the stability of the coins issued,”.
Harris further went on to say, “Leveraging our years of expertise in the space, our Regulatory Guidance today creates clear criteria for virtual currency companies looking to issue USD-backed stablecoins in New York.”
Multiple authorities, both in the United States and internationally, have been alerted by the breakdown of the TerraUSD ecosystem, resulting in ad-hoc regulation to prevent additional market volatility.
What are the terms laid out in the guidelines?
According to the regulation, stablecoins must be “fully backed” by a reserve of assets equivalent to the current prices of each item by the end of every business day.
The guidance states that “The issuer of the stablecoin (the “Issuer”) must adopt clear, conspicuous redemption policies, approved in advance by DFS in writing, that confer on any lawful holder of the stablecoin a right to redeem units of the stablecoin from the Issuer in a timely fashion at par for the U.S. dollar. “
Those assets must be held in custody with the United States state or federally authorized custodial organization or asset custodian and must be distinct from the stablecoin Issuer’s daily operations revenues.
The agency further stated, “The purpose of this Regulatory Guidance is to set forth baseline requirements that will generally apply to stablecoins backed by the U.S. dollar that are issued under DFS oversight. However, DFS may impose different requirements on any particular stablecoin arrangement backed by the USD and will require clear and conspicuous disclosure of any such different requirements.”
That should be good for issuers like Circle, which claims that its USDC is fully backed by dollar deposits and short-term U.S. Treasurys and hence redeemable for U.S. dollars, unlike Terra’s failed algorithmic approach.
An impartial Certified Public Accountant is expected to evaluate the Issuer’s claims once a month, per the guidance, to ensure that their stablecoins are supported by what they say they are.
It’s the latest in a long line of tightening laws affecting crypto assets whose values are often tethered 1:1 to fiat currencies or commodities such as gold.
Legislations in other countries
Japan’s investor protection bill was passed on Friday, establishing a legislative structure for stablecoins to be tied to the yen or other legal cash while allowing holders to redeem them at face value.
Following Terra’s demise, the U.K. is looking into measures to strengthen the teeth of its major financial regulator when it relates to the oversight of digital money and payments to safeguard customers from what it sees as possible payment business insolvencies.
