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New York Virtual Currency Proposal Could Capture Bank Products, Card Rewards Programs
On July 17, the New York Department of Financial Services (NYDFS) proposed a rule intended to govern the virtual currency marketplace. The proposed rule is extremely broad and as currently drafted would appear to capture products provided by traditional brick and mortar banks and other regulated financial institutions. For example, as proposed, the rule could regulate:
- Reward programs, "thank you" offers, or digital coupons that offer cash back or statement credits;
- Generated numbers that access cash;
- Prepaid access and other cards that will allow customers to receive cash, including those customarily exempt such as government funded transfers;
- P2P transfers; and
- Wallet providers where the customer can access cash.
If left unaddressed, these apparent unintended consequences could create a confusing regulatory environment for certain bank and card products. It is also noteworthy that the rule does not provide any customary exclusions for chartered entities, raising substantial preemption questions.
Businesses engaging in activities covered by the proposed rule would be required to apply for a license from the NYDFS within 45 days of the effective date of the regulation. The proposed rule also sets out comprehensive compliance obligations involving consumer protection, cybersecurity, anti-money laundering, and anti-fraud, and the rule would subject licensed institutions to examination by the NYDFS. Failure to obtain a license could result in disciplinary action by the NYDFS.
The comment period on the proposed rule ends on September 6, 2014.
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Our Digital Commerce & Payments Practice group is experienced in regulatory matters arising at the intersection of digital payments, financial institutions, and technology providers, and is uniquely positioned to assist virtual currency and related companies whose business brings them into contact with the CFPB and/or the NYDFS.
Please contact one of the attorneys listed below if you would like to discuss the scope of the obligations set forth in the NYDFS proposed rule.
- Manley Williams, (202) 349-8060
New York Plans Targeted Bank Cybersecurity Examinations
On May 6, New York Governor Andrew Cuomo released a report on bank cybersecurity preparedness and directed the New York State Department of Financial Services (DFS) to conduct targeted cybersecurity preparedness assessments of the DFS-regulated banks. The DFS is revising its examination procedures to add questions to assess IT management and governance, incident response and event management, access controls, network security, vendor management, and disaster recovery. DFS plans to release additional details about the timing and content of these examination procedures in the coming weeks. The report follows a year-long survey of 154 DFS-regulated banks, which revealed that “most institutions experienced intrusions or attempted intrusions into their IT systems over the past three years.” The review revealed that third-party payment processor breaches were reported by 18% and 15% of small and large institutions, respectively, and that large institutions also cited mobile banking exploitation, ATM skimming/point-of-sale schemes), and insider access breaches. Last year, the DFS announced a similar inquiry into cyber preparedness at insurance companies it regulates.