The new criteria for issuing USD-backed stablecoins call for redeemability, reserves, and attestations.
In the wake of the USDT fiasco that sent tremors across the crypto market, the New York State Department of Financial Services (DFS) has created and released regulatory guidance on issuing stablecoins backed by the USD. In the official announcement, DFS claims to be the first US financial regulator to roll out such rules for stablecoins issuers. The new set of expectations stands upon Superintendent Harris’ VOLT Initiative for DFS Virtual Currency Unit. The primary reason for the new DFS regulatory guidance is to set a baseline for the issuance of USD-backed stablecoins.
DFS Releases New Expectations for Dollar-Backed Stablecoins
The new criteria for issuing USD-backed stablecoins call for redeemability, reserves, and attestations.
Firstly, the agency discussed the need for a Reserve of assets to back stablecoins. As such, the market value of the Reserve is at least equal to the face value of outstanding units when each business day ends. To abide by this guidance, stablecoins issuers are to have clear redemption policies. The policies must favor stablecoins holders on redemption rights and be approved by the DFS in writing.
In addition, the DFS noted that all stablecoins issuers must separate assets in Reserve from the proprietary assets. Meanwhile, the US state of federally chartered asset custodians or deposition institutions must be in charge of the Reserve. Moreso, the watchdog highlighted the content of the Reserve. They include US Treasury Bills acquired by the stablecoins issuer three months or less before their maturities and an agreement that depicts Reserve repurchase collateralized by US Treasury bills. The Reserve must also consist of DFS-approved US Treasury bonds overnight.
Conclusively, DFS calls for an examination of management’s assertions on Reserve. These examinations must occur at least once monthly by an independent Certified Public Accountant (CPA) licensed in the US. Also, the audits must be done with the application of attestation standards of the American Institute of Certified Public Accountants (AICPA).
The Rules Guide Only DFS-Regulated Coins
Notably, the expectations are not limited to the existing ones. The agency may impose different requirements on specific stablecoins when necessary. The regulatory guidance applies to only DFS-regulated stablecoins such as USDP, DUSB, GUSD, and ZUSD. It also concerns other dollar-backed stablecoins that DFS-regulated entities seek to issue.
However, DFS added that the requirements and risks are not the only ones the agency considers.
“DFS looks at a range of potential risks before authorizing a regulated virtual currency entity to issue a stablecoin, including risks relating to cybersecurity and information technology; network design and maintenance and related technology and operational considerations; Bank Secrecy Act/anti-money-laundering (“BSA/AML”) and sanctions compliance; consumer protection; safety and soundness of the issuing entity; and the stability/integrity of the payment system, as applicable,” the watchdog added.
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