New York Slashes Crypto 'Greenlist' Alongside New Guidance On Coin Listings

A New York regulator has reduced the number of "Greenlisted" crypto-assets in the state from 25 to eight, and has issued new proposals on how firms should handle coin listings and delistings.

Earlier this month, the New York State Department of Financial Services (DFS) introduced new changes to its crypto Greenlist and greenlisting framework, effective as of September 18.

The Greenlist is a roster of tokens that any New York-regulated firm can list and offer to customers without prior approval from the DFS.

Alongside changes to the Greenlist, the DFS also opened a new consultation on how regulated firms should handle the listing and delisting of coins.

The consultation is open until October 20, and aims to hash out new rules that will apply to the two types of firms that are authorised to conduct crypto-asset business activity in New York.

These include firms that hold a New York BitLicense and firms that are chartered as limited purpose trusts under New York banking law.

All change at DFS Greenlist

The DFS Greenlist has changed significantly since it was last updated in June 2022. Back then, the list was made up of Bitcoin, Ethereum, 17 altcoins and six stablecoins.

However, in its latest Greenlist, all altcoins except for Ethereum have been removed, and outside Bitcoin and Ethereum, the list is now made up entirely of stablecoins.

There is only one new entrant to the latest Greenlist, namely PayPal USD, the PayPal stablecoin that was launched in August this year.

Meanwhile, notable removals from the Greenlist include XRP, Litecoin, Aave, Wrapped Bitcoin and Dogecoin.

XRP is a surprise in light of Ripple’s court victory over the Securities and Exchange Commission (SEC) in July, with the court finding that XRP is not in itself a security.

Meanwhile, Dogecoin is the “meme coin” of choice for Elon Musk, who continues to toy with the idea of integrating Dogecoin payments into X (formerly Twitter) under his ownership.

One notable omission from both the previous and the updated Greenlist is USDC, the stablecoin issued by Circle.

Despite Circle having held a BitLicense in New York since 2015, its stablecoin (the world’s second-largest after Tether) is yet to appear on the Greenlist.

Greenlist criteria and benefits

The main benefit of a crypto-asset being greenlisted is that regulated firms do not need to seek prior approval from the DFS to list these assets and offer them to their customers.

However, regulated firms must notify the DFS at least ten days before listing a greenlisted asset, and they must have in place a DFS-approved policy on the delisting of assets from their platform.

The DFS describes the Greenlist as “wholly separate” and “independent” from any individual firm’s listing policies.

In its latest update to the General Framework for Greenlisted Coins, which is effective immediately, the DFS said it may consider greenlisting an asset if it meets one of the following criteria:

1. The coin or coin issuer has a demonstrated, historic record consistent with safety and soundness and the protection of customers, including broad marketplace adoption.
    
2. The coin is a stablecoin that has been approved by the DFS for issuance in New York by a New York-regulated firm.

In the case of (2), if a regulated firm plans to issue a US dollar-backed stablecoin, it must also comply with the DFS’ June 2022 guidance on redeemability, reserves and attestations.

The DFS added that it can add or remove a coin from the Greenlist at any time, or it can prohibit or limit a coin’s use before or after it is issued by a regulated firm. It can also “discontinue the Greenlist process entirely” at any time.

Listing and delisting proposals

The two main issues that the DFS is seeking comment on are “heightened” risk assessment standards for firms’ coin listing policies, and new requirements associated with coin delisting policies.

Within the DFS’ plans for higher risk assessment standards, firms will be expected to comply with “enhanced” requirements to ensure the safety and soundness of retail consumer-facing products and services.

When the DFS publishes its final guidance following the consultation, regulated firms will be unable to “self-certify” a new token until the firm has submitted its revised listing policy to the DFS.

Once the policy is approved, then regulated firms can list new tokens without seeking prior approval from the DFS.

For the listing policy to be compliant with the proposed guidance, it must be structured around and meet DFS criteria in three areas, namely governance, risk assessment and monitoring.

To meet the governance criteria, a regulated firm must ensure that its board of directors (or an “equivalent governing authority”) is responsible for shaping and reviewing its listing policy, and for screening it for conflicts of interest.

The risk assessment criteria require each regulated firm to demonstrate that its listing policy takes into account a wide range of technical and non-technical risks associated with each token.

For example, risk associated with design and technology, operational, IT and cybersecurity, market and liquidity, illicit finance, legal and reputational must all be considered.

The monitoring criteria require regulated firms to re-evaluate previous coin listings, while considering factors such as technical changes to the coin and the protection of customers and the general public.

It should be noted that a regulated firm cannot self-certify any stablecoin that is not on the Greenlist, and cannot self-certify “exchange coins”, i.e. those issued by exchanges.

The DFS’ proposals on delisting policy are similar. The DFS has asked that regulated firms meet with the regulator by December 8 to discuss the drafting of their delisting policy, and the final draft should be submitted by January 8, 2024.