NY AG James Releases Draft Legislation to Regulate Crypto

New York Attorney General Letitia James, recently proposed a state law entitled The Crypto Regulation, Protection, Transparency, and Oversight (CRPTO) Act, which would require independent audits of crypto exchanges as well as prohibit individuals from owning brokerages and tokens to reduce conflicts of interest.

“New York investors should have the peace of mind that there are safeguards in place to protect them and their money,” James said in the bill’s announcement. “All investments are regulated to account for every penny of investors’ money — cryptocurrency should be no exception.”

Under the Electronic Fund Transfer Act, banks are required to reimburse customers who are victims of fraud, and James said the crypto platforms should be obligated to do the same. In her efforts to crack down on crypto through regulation this year, James sued Alex Mashinsky, ex-Celsius CEO, for allegedly defrauding investors, as well as bankrupt crypto exchange Voyager Digital for illegally serving New Yorkers. She also sued KuCoin for failing to register as a security in New York.

According to Banking Dive, James noted that investors have lost hundreds of billions of dollars in crypto, as Bitcoin fell from a record high of $68,789 in November 2021 to an all-time low of $15,649 nearly a year later. However, some of Bitcoin’s value has returned, as earlier this month its price was $29,584. 

“Currently, the cryptocurrency industry lacks a robust regulation regime that would prevent or intercept fraud and market failures,” she said. “While there are millions of investors who have lost significant investments because of these failures, lower income investors and people of color have been disproportionately harmed by the risks of crypto.”

The bill would increase investor protections by requiring firms to develop “know-your-customer” provisions. Crypto marketplaces and brokers would only be permitted to do business with firms that adhere to these provisions.