Adrienne Harris, the financial regulator of the State of New York, said that the ‘element of anonymity’ of crypto creates an environment that facilitates its use for illicit finance.
Harris talked about crypto at the Financial Times Crypto Winter Summit and said that crypto is used by bad actors for illicit finance.
The statement
New York Department of Financial Services (NYDFS) Superintendent, Harris gave the example of using cash for making ransom payments.
She said that in that scenario, someone needs to go to the drop site to make the payment, but the same does not apply to crypto.
According to the regulator, digital assets do have an element of traceability, but it still grants anonymity to the users.
Harris also disclosed that some federal and state regulators have been pondering over the illicit finance component of crypto for several years now.
She also said that they were likely to continue thinking about it and would pay greater attention to it now.
This is because the US Department of Justice (DOJ) and other global authorities have shed light on Binance and other similar cases where crypto has been used in illicit finance.
The challenge
According to Harris, ‘socializing’ crypto companies to the regulatory environment has been one of the challenges that the NYDFS has faced.
She stated that socializing companies in the digital industry is a big challenge that does not apply to traditional financial companies, such as insurance companies, banks and mortgage lenders.
This is because the latter are already aware of the kind of interaction they are supposed to have with regulators.
But, since this does not apply to crypto firms, they have had to go for a ‘tone reset’. Harris elaborated that this involves the NYDFS outlining its expectations and regulations for crypto firms.
Most importantly, enforcement actions are taken where required. She gave examples of the lawsuit against Robinhood worth $30 million and that against Coinbase worth $100 million.
More details
Harris went on to say that the issue was that the business expands at a much faster pace than the compliance apparatus.
This is evident from the fact that most of the businesses that turn out to be non-compliant with its regulations are those that are involved in cybersecurity violations or illicit finance.
She also presented the argument that crypto companies need to resource compliance properly.
Even though there have been several discussions about leveraging blockchain technology to ensure robust KYC (Know-Your-Customer), it has not happened as yet.
Harris revealed that whenever they do an investigation of crypto companies, they are stunned to find reams of paper in the offices.
She added that companies that want to be part of the crypto ecosystem need to be mature financial services companies, which they fail to be for the most part.
This is not the first time that regulators have expressed their concerns about the use of crypto for illicit finance.