New York Attorney General Proposes Stricter Regulations for The Crypto Industry

New York Attorney General Letitia James has introduced a new legislative proposal to regulate the cryptocurrency industry and safeguard investors.

Known as the CRPTO Act, the said regulation proposes several measures, such as requiring independent auditing and the publishing of financial statements by crypto companies, preventing individuals who own crypto exchanges from also owning the companies that trade on those exchanges, and prohibiting crypto exchanges from keeping custody of customers’ funds. 

The legislation also seeks to prevent conflicts of interest, financial shenanigans and requires platforms to reimburse customers who are victims of fraud. 

“Rampant fraud and dysfunction have become the hallmarks of cryptocurrency and it is time to bring law and order to the multi-billion-dollar industry,” James said in a Friday statement, adding, “These commonsense regulations will bring more transparency and oversight to the industry and strengthen our ability to crack down on those that don’t pay respect to the law.”

The proposed legislation is a response to growing concerns over the cryptocurrency industry’s lack of transparency and oversight, which has been plagued by rampant fraud and dysfunction, leading to a spate of high-end financial scandals.

The latest proposal comes even as the state of New York intensifies efforts to rein over the crypto industry, especially after the collapse of FTX last November. Recently, James filed lawsuits against KuCoin and CoinEx, accusing the two exchanges of failing to register as securities and commodities brokers. 

Earlier this year, she warned Nexo against operating illegally and ordered it to stop issuing Binance USD (BUSD), the third largest stablecoin by market cap. In addition to cautioning investors against dabbling with crypto assets severally, in November 2022, James urged Congress to adopt legislation prohibiting investing retirement funds in cryptocurrencies.

That said, her latest proposal continues to receive support from various lawmakers and industry players who see it as creating fair and several environments for crypto investors in New York. 

“I applaud New York State Attorney General Letitia James for the timely introduction of this legislation to protect New Yorkers from financial harm by establishing a comprehensive regulatory framework for the opaque cryptocurrency market,” said State Senator Kevin Parker. “The cryptocurrency industry must be held to the same macroprudential financial regulations as our traditional financial institutions to ensure accountability and market stability.”

Meanwhile, New York watchdogs aren’t the only ones tightening their nose around crypto. Various federal and government agencies, including the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), continue to scrutinize crypto activities even as the US grapples with adopting comprehensive legislation for the fast-growing industry.