NY Attorney General proposes CRPTO Act to regulate the cryptocurrency market

May 8, 2023 Rob Abruzzese

Attorney General Letitia James announces the CRPTO Act, new legislation designed to increase regulation and oversight in the cryptocurrency industry. Photo: Kin Cheung/AP.

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New York Attorney General Letitia James has proposed landmark legislation that aims to tighten regulations on the cryptocurrency industry in order to protect consumers and the broader economy.

The bill is set to become one of the most comprehensive sets of regulations on cryptocurrency in the nation. The proposed legislation would increase transparency, eliminate conflicts of interest, and impose commonsense measures to protect investors, similar to those imposed on traditional financial services, the AG said.

New York State Comptroller Thomas DiNapoli acknowledged the need for regulation and oversight in the rapidly growing crypto industry. With New York being the financial capital of the world, it is essential for the state to lead these efforts, he said. Consumer protection is a priority, especially for low-income New Yorkers and people of color who may face a disproportionate share of losses due to the lack of transparency in the crypto market.

The Crypto Regulation, Protection, Transparency, and Oversight (CRPTO) Act, proposed by the New York State Office of the Attorney General (OAG) in collaboration with the New York Department of Financial Services (DFS), aims to establish a legal framework that promotes transparency and protections for crypto investors, similar to those which exist for other financial institutions.

Key provisions of the proposed bill include requiring digital asset brokers, marketplaces, investment advisers, and issuers to obtain a license from the Department of Financial Services and comply with reporting requirements. Additionally, the bill would crack down on conflicts of interest, enhance transparency, and enforce strict cybersecurity requirements.

This legislation is designed to create a level playing field for crypto firms and traditional financial institutions, as well as empower customers to make informed investment decisions and safeguard their assets.

Recent efforts by Attorney General James to regulate the industry include actions against unregistered cryptocurrency platforms such as KuCoin and CoinEx, recovery of $24 million from Nexo for operating illegally, and suing the former CEO of Celsius for defrauding investors.

She has also called on Congress to adopt legislation prohibiting investing retirement funds in cryptocurrencies and reached a settlement with BlockFi Lending LLC for offering unregistered securities. She issued taxpayer notices to virtual currency investors for tax compliance and directed unregistered crypto lending platforms to cease operations.

The CRPTO Act would require independent public audits of cryptocurrency exchanges and forbid individuals from owning multiple entities in the industry to prevent conflicts of interest. It would also mandate crypto platforms to reimburse customers who fall victim to fraud, similar to the federal Electronic Fund Transfer Act’s requirements for banks. Additionally, the bill aims to strengthen DFS’s regulatory authority over digital assets.

The legislation focuses on preventing conflicts of interest, requiring public reporting of financial statements, and bolstering investor protections. It would grant the Attorney General jurisdiction to enforce the law, issue subpoenas, impose civil penalties, collect restitution and damages, and shut down businesses engaging in fraud and illegality.

The bill would also authorize DFS to license digital asset brokers, marketplaces, investment advisors, and issuers before conducting business in New York and allow DFS to oversee the digital asset licensing regime.

“The lack of transparency plaguing the crypto industry causes immense harm to countless investors, especially low-income New Yorkers and people of color who carry a disproportionate share of the losses,” said NYC Comptroller Brad Lander. “We cannot let the crypto industry operate without a basic infrastructure for accountability. With this bill, Attorney General Letitia James is addressing the urgency for greater oversight of the crypto industry and building a legal framework to protect New Yorkers and the economy from predatory companies.”