The guidance requires virtual currency entities to collect relevant data so that the Department can assess whether they are resolving customer service requests and complaints in a timely and fair manner. 

The Department outlines commonly effective policies and procedures, including:

• providing customers with both a phone and electronic text mechanism to submit requests and complaints, in addition to any other methods to submit requests and complaints a VCE may have;
• providing regular updates and estimated resolution timelines to the customer, providing a means for the customer to stay apprised of the status of their request or complaint, and providing an explanation when the outcome of an issue is less than what the customer was seeking;
• publishing an FAQ or similar communication without requiring an account to log in;
• tracking requests and complaints, along with feedback on customer satisfaction;
• reporting a quarterly tabulation of the number of requests and complaints received, broken down by method and request/complaint topic. The tabulation must include the average time from receipt to resolution of the requests and complaints;
• providing a copy of their customer service and complaint policies and procedures, including provisions that align with the standards described throughout the guidance;
• specifying the individual or individuals responsible for the customer service and complaint policies and procedures.

The bill, called The Crypto Regulation, Protection, Transparency, and Oversight Act (CRPTO), sets out requirements for independent public audits of cryptocurrency exchanges and preventing  individuals from owning the same companies, such as brokerages and tokens, to stop conflicts of interest. Crypto platforms "would have responsibilities to customers similar to banks under the federal Electronic Fund Transfer Act by requiring platforms to reimburse customers who are the victims of fraud." The bill would also strengthen the New York State Department of Financial Services’ (DFS) regulatory authority of digital assets.

Overview of CRPTO

1. Stopping conflicts of interest

The bill would stop conflicts of interest by:

• preventing common ownership of crypto issuers, marketplaces, brokers, and investment advisers and preventing any participant from engaging in more than one of those activities;
• preventing crypto brokers and marketplaces from trading for their own accounts;
• prohibiting marketplaces and investment advisers from keeping custody of customer funds;
• prohibiting brokers from borrowing or lending customer assets; and
• prohibiting referrals from marketplaces to investment services for compensation.

2. Requiring public reporting of financial statements

The bill would increase transparency in the industry by requiring companies to:

• undergo mandatory independent auditing and publish audited financial statements;
• provide investors with material information about issuers, including risks and conflict-of-interest disclosures;
• require marketplaces to establish and publish listing standards; and
• require cryptocurrency promoters to register and report their interest in any issuer whose cryptoassets they promote.

3. Bolstering investor protections

At present, the law does not protect investors’ cash or provide a means for returning an investor’s crypto holdings if a crypto exchange, broker, or platform fails.

The bill would bolster investor protections by:

• enacting and codifying 'know-your-customer' provisions, meaning brokers would have to know essential facts about their customers, and requiring crypto brokers and marketplaces to only conduct business with firms that comply with KYC provisions;
• banning the use of the term 'stablecoin' to describe or market digital assets unless they are backed 1:1 with U.S. currency or high-quality liquid assets as defined in federal regulations; and
• requiring platforms to reimburse customers who are the victims of unauthorised asset transfers and transfers resulting from fraud.

The CRPTO Act gives the Attorney General jurisdiction to enforce any violation of the law, issue subpoenas, impose civil penalties of $10,000 per violation per individual or $100,000 per violation per firm, collect restitution, damages, and penalties, and shut down businesses engaging in fraud and illegality.

The bill would also codify DFS’ authority to license digital asset brokers, marketplaces, investment advisors, and issuers prior to engaging in business in New York and allow DFS to oversee the digital asset licensing regime.

Attorney General James said: “Rampant fraud and dysfunction have become the hallmarks of cryptocurrency and it is time to bring law and order to the multi-billion-dollar industry. 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. These commonsense regulations will bring more transparency and oversight to the industry and strengthen our ability to crack down on those that don’t pay respect to the law.”

This bill will be submitted to the State Senate and Assembly for their consideration during the 2023 legislative session.

Letters were sent to 13 major cryptocurrency exchanges, including Coinbase and Gemini Trust, requesting key information on their operations, internal controls and safeguards to protect customer assets.

“With cryptocurrency on the rise, consumers in New York and across the country have a right to transparency and accountability when they invest their money. Yet too often, consumers don’t have the basic facts they need to assess the fairness, integrity, and security of these trading platforms. Our Virtual Markets Integrity Initiative sets out to change that, promoting the accountability and transparency in the virtual currency marketplace that investors and consumers deserve,” Schneiderman said.

The NYAG explained that the initiative stems from the Attorney General's duty to protect consumers and ensure the fairness and integrity of the financial markets.

As part of the initiative, a questionnaire was sent to the platforms, asking them to disclose information on six major topic areas, including details of ownership and control, basic operations and fees, as well as privacy and money laundering.

The questionnaire also asks the platforms to describe their approach to combating suspicious trading and market manipulation; their policies on the operation of bots; their limitations on the use of and access to non-public trading information; and the safeguards they have in place to protect customer funds from theft, fraud, and other risks.

The initiative aims to ensure that investors and consumers have the information they need to understand the practices and the risks associated with cryptocurrency platforms.

The release said:

“Often, the platforms lack the basic market protections of traditional investing platforms. Moreover, the extent of disclosures to customers about trading rules, internal controls, and other basic practices varies from platform-to-platform, making it difficult or impossible for prospective users to evaluate the actual risks of trading on a particular platform.”

The Attorney General’s office will analyse the responses to the questionnaire, compare them across platforms, and present findings to the public.

The Investor Protection Bureau of the Office of the Attorney General sent letters to the following exchanges: Coinbase, Inc. (GDAX), Gemini Trust Company, bitFlyer USA, Inc., iFinex Inc. (Bitfinex), Bitstamp USA Inc., Payward, Inc. (Kraken), Bittrex, Inc., Circle Internet Financial Limited (Poloniex LLC), Binance Limited, Elite Way Developments LLP (Tidex.com), Gate Technology Incorporated (Gate.io), itBit Trust Company, and Huobi Global Limited (Huobi.Pro).