New York attorney general proposes new cryptocurrency legislation

New York Attorney General Letitia James today proposed legislation that would ban cryptocurrency companies from engaging in deceptive business practices.

The Crypto Regulation, Protection, Transparency, and Oversight Act, or CRPTO Act for short, also seeks to tackle other issues such as conflicts of interest. It would furthermore empower the attorney general to fine or shut down companies that breach the regulation. The attorney general’s office stated that the proposed legislation is designed to protect investors, as well as consumers and the broader economy.

“Rampant fraud and dysfunction have become the hallmarks of cryptocurrency and it is time to bring law and order to the multibillion-dollar industry,” James stated. “New York investors should have the peace of mind that there are safeguards in place to protect them and their money. All investments are regulated to account for every penny of investors’ money — cryptocurrency should be no exception.”

The first goal of the CRPTO Act is to tackle conflicts of interest in the digital asset ecosystem. To that end, the legislation would ban common ownership of cryptocurrency issuers, investment advice providers, digital asset marketplaces and brokers. A company that has issues a cryptocurrency, for example, wouldn’t be allowed to act as an investment adviser. 

The CRPTO Act also seeks to prohibit cryptocurrency brokers and marketplace operators from carrying out trades on behalf of their own accounts. Moreover, marketplaces would not be permitted to refer users to investment services in exchange for compensation.

Another set of rules in the CRPTO Act seeks to make the digital asset ecosystem more transparent. Under the proposed legislation, cryptocurrency exchange operators would have to undergo independent public audits. The CRPTO Act would furthermore require that exchanges disclose risks and conflicts of interest to users. 

To reduce fraud, the act proposes applying an expanded set of regulatory requirements to cryptocurrency brokers. Brokers would be required to implement know-your-customer workflows for verifying user accounts. Additionally, cryptocurrency platforms would be required to reimburse customers for fraud-related losses.

The act also proposes several other new rules. It would, among others, prohibit brokers from borrowing or lending customer assets, as well as improve regulation of the stablecoin ecosystem. The proposed legislation specifies that companies should only be allowed to market a digital asset as a stablecoin if it’s backed one-to-one by “U.S. currency or high-quality liquid assets as defined in federal regulations.”

The CRPTO Act would grant the attorney general jurisdiction to issue subpoenas in connection with violations of the law, as well as impose fines. Moreover, the attorney general would have the ability to shut down businesses engaging in fraud and illegality.

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