NYDFS Announces Enhanced Fraud and Illegal Activity Detection Abilities

On February 21, the New York Department of Financial Services (NYDFS) announced that through the use of new insider trading and market manipulation risk monitoring tools, it would possess an “enhanced ability to detect fraud and other illegal activity” being perpetrated New York state-regulated entities engaged in virtual currency.  

According to this article in Pymnts, this announcement comes at a time of increased pressure on the crypto industry, as the cryptocurrency sector has recently undergone “a seismic change” which was reportedly "caused in part by the co-mingling of customer funds” that led to the collapse of leading cryptocurrency companies, such as FTX. 

While details of the enhancements were not provided, NYDFS Superintendent, Adrienne Harris, announced that the technology will be leveraged to detect “potential insider trading, market manipulation, and front-running activity associated with Department-regulated entities’ and applicants’ exposure or potential exposure to listed virtual currency wallet addresses.” Harris stated, “[t]hese tools will help us combat financial crime and fraud, hold regulated entities accountable, and further strengthen our national leadership in virtual currency supervision.”  

According to Pymnts, this innovative approach by NYDFS is nothing new as NYDFS “is considered among the country’s most formidable and respected regulators of virtual currency in the country,” due to their history of implementing regulations and enforcing sanctions in the cryptocurrency space. As Coin Insider stated, “[t]he investigations at play are a mark that the industry, while decentralized, is far from immune to regulatory scrutiny.”