NYDFS issued guidance for regulated banking institutions concerning their approach to risks associated with cryptocurrency businesses that may be bank customers or that interact with bank customers
· The guidance sensibly responds to the more permissive regulatory environment for cryptocurrency filtering down from the Trump Administration’s major policy shifts
· The guidance principally relates to the use of blockchain analytics, requiring the following from licensed banks:
o Screening wallets of customers who have disclosed or exhibited crypto-related transactions, to assess risk exposure;
o Verifying the source of incoming funds originating from virtual asset service providers (“VASPs”);
o Monitoring the crypto ecosystem holistically, to assess customer (e.g., VASP) exposure to money laundering, sanctions violations, or other predicate crimes;
o Identifying and gauging the risk of third parties (e.g., VASP counterparties) with which a customer has engaged;
o Evaluating expected versus actual activity (e.g., dollar thresholds) of customers engaging in virtual currency activity;
o Utilizing intelligence gained from holistic monitoring to further develop the regulated entity’s risk assessments and risk appetite;
o Weighing the risks associated with a virtual currency product or service to be offered.
· The new guidance builds on the Department’s prior guidance to virtual currency businesses in 2022, which likewise prescribed the use of blockchain analytics