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On
May
5,
2023,
New
York
Attorney
General
Letitia
James
released proposed
legislation that
seeks
to
regulate
all
facets
of
the
cryptocurrency
industry.
Entitled
the
“Crypto
Regulation,
Protection,
Transparency,
and
Oversight
(CRPTO)
Act,”
if
enacted
the
bill
would
substantially
expand
New
York’s
oversight
of
crypto
enterprises
conducting
business
in
the
Empire
State,
including
as
to
matters
involving
privacy
and
cybersecurity.
The
bill
includes
a
broad
set
of
measures
intended
to
regulate
comprehensively
the
entire
cryptocurrency
ecosystem. Subject
to
certain
exceptions
for
tokens
used
in
online
gaming,
sports
wagering,
customer
loyalty
programs
and
other
favored
uses,
“digital
asset”
is
expansively
defined
under
the
bill
to
include
any
“type
of
digital
unit,
whether
labeled
as
a
cryptocurrency,
coin,
token,
virtual
currency,
or
otherwise,
that
can
be
used
as
a
medium
of
exchange,
a
form
of
digitally
stored
value,
or
a
unit
of
account.”
The
bill
also
provides
that
“digital
asset
shall
be
broadly
construed
to
include
digital
units
that
have
a
centralized
repository
or
administrator,
are
decentralized
and
have
no
centralized
repository
or
administrator,
or
may
be
created
or
obtained
by
computing
or
manufacturing
effort.”
Attorney
General
James’s
bill
includes
a
wide
array
of
provisions
that
would
impact
various
parties
who
transact
in
digital
assets,
including
their
issuers,
brokers,
investment
advisers,
marketplaces
and
even
social
media
influencers.
Among
other
things,
the
bill
would
impose
on
these
parties
far-ranging
registration,
disclosure,
audit
and
business
conduct
rules.
For
example,
digital
asset
brokers
would
be
required
to
maintain
net
capital
in
the
same
way
as
securities
broker-dealers,
and
digital
asset
intermediaries
would
be
required
to
reimburse
customers
for
unauthorized
and
fraudulent
transfers.
Many
common
practices
for
crypto
exchanges
would
also
be
outlawed
entirely,
such
as
cross-ownership
of
digital
asset
issuers,
marketplaces,
brokers
and
investment
advisers;
borrowing
or
lending
customer
assets;
certain
trading
strategies;
and
self-custody
of
digital
assets.
The
bill
would
also
limit
the
use
of
the
term
“stablecoin”
to
describe
or
market
digital
assets
unless
they
meet
narrow
criteria.
The
bill
provides
that
every
digital
asset
issuer,
digital
asset
broker,
digital
asset
marketplace,
and
digital
asset
investment
adviser
must
create,
implement
and
maintain
an
effective
cybersecurity
program
that
satisfies
the
requirements
of
applicable
state
and
federal
data
privacy
and
cybersecurity
laws.
The
bill
additionally
imposes
an
unusual
obligation
on
digital
asset
marketplaces
to
verify
that
the
digital
asset
software
code
is
consistent
with
the
issuer’s
disclosures
to
purchasers,
and
that
it
contains
security
properties
in
compliance
with
applicable
state
and
federal
laws.
The
bill
also
includes
new
enforcement
authority
and
a
new
antifraud
statute
for
the
Attorney
General.
If
adopted,
the
bill
further
grants
the
Attorney
General
broad
rule-writing
authority.
It
is
unclear
what
the
prospects
for
passage
of
the
bill
are
in
the
New
York
State
Legislature,
but
the
Attorney
General’s press
release announcing
the
draft
includes
favorable
commentary
from
numerous
political
figures,
state
legislators
and
consumer
protection
advocates.
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