Love it or leave it, New York State has established itself as a formidable force in the realm of cryptocurrency regulation. A decade ago, New York created the first comprehensive regulatory framework for firms dealing in cryptocurrencies, characterized by essential consumer protection measures, anti-money laundering compliance, and cybersecurity guidelines.
In September 2015, the New York Department of Financial Services (NYDFS) issued its inaugural BitLicense to Circle Internet Financial, granting the company authority to engage in digital currency business in the state. Ripple Markets received the second BitLicense in 2016, helping both firms evolve into significant players in the global cryptocurrency and stablecoin markets.
Today, the NYDFS oversees one of the largest collections of crypto firms globally and is often regarded as the gold standard for crypto regulation in the United States.
Against this backdrop, Ken Coghill, the NYDFS’s deputy superintendent for virtual currencies, took the stage at Cornell Tech’s blockchain conference on April 25 to discuss “A New Era of U.S. Innovation in Crypto.”
“We Set the Guardrails”
The majority of firms seeking a BitLicense are crypto-native and frequently inexperienced when it comes to navigating regulatory landscapes. As Coghill highlighted at the conference, many do not fully comprehend their responsibility over others’ assets. He stated:
If you want to start a business and the only person you’re putting at risk is your own business, that’s not really our concern. We only exist because you’re selling something to somebody else, and you’re maintaining control over that product for someone else.
Coghill emphasized, “We set the guardrails,” cautioning that it is the industry’s responsibility to understand and operate within these limitations. The NYDFS cannot foresee every potential mishap that may arise in a business.
Furthermore, traditional financial institutions are increasingly expressing interest in the crypto space. Large banks are beginning to offer crypto custody services, while others are venturing into settlement services. According to Coghill, “The conventional [bank] model is being brought into the crypto [sphere] primarily because it makes people feel comfortable.”
Although the NYDFS has issued only 22 BitLicenses thus far, Coghill noted that the department is prepared to manage a potential influx of applications from traditional financial firms should they decide to enter the crypto market. He assured the audience, “On a per capita basis, we have more supervisory resources focused on crypto businesses than we do for all of those other [non-crypto] businesses,” which includes 3,000 banks, insurance companies, and other financial institutions.
The Journey from Dubai to New York
Coghill’s path to the NYDFS began in July 2024, following a 12-year tenure in the Middle East with the Dubai Financial Services Authority, where he ultimately led innovation and technology risk supervision. He humorously noted that a “whim” led him to the region; what was initially a three-year commitment turned into a decade-long role focused largely on regulating global systemically important banks (G-SIBs) and developing cryptocurrency supervision models.
Recent events in the financial landscape compelled him to return to the United States, where he previously held a management position in the market regulation department at the Chicago Board Options Exchange. Coghill was drawn to the NYDFS role partly because “the world looks to New York, and the world looks to the DFS” for regulation.
During the conference, Coghill was asked what constitutes effective regulation. He replied, “Good regulation is regulation that doesn’t prohibit activity but applies appropriate guardrails that reduces risk to clients.” He acknowledged that while it is impossible to eliminate risk entirely, overly restrictive regulations can hinder business activity.
Coghill compared the regulatory landscape to a pendulum oscillating between two extremes: too lenient and too restrictive. He observed, “The pendulum swung too far to one end of the regulation in the last few years [i.e., too restrictive]. Now it’s swinging back.”
A Bridge to Federal Regulation
Regarding the current regulatory climate in Washington, DC, Coghill said, “For DFS, it’s largely business as usual,” as New York State has had crypto regulations in place for years. He emphasized that much of the recent federal activity is influenced by the state’s efforts, noting, “We have a team that practically sits in Washington and has discussions with Congressional members, talking about what we think will work and what won’t work.”
New York’s crypto initiatives have also inspired other states, such as California, which recently enacted crypto reform legislation that builds on New York’s model.
However, the BitLicense has faced criticism within the crypto community for its steep costs and rigorous compliance requirements, which some firms deem overly burdensome. For example, crypto exchange Kraken exited New York in response to these regulatory challenges.
When asked about how the NYDFS views decentralized protocols compared to traditional financial institutions, Coghill emphasized evaluating the purpose of the product: “What’s its underlying intent? Who does it serve, and what are its good and bad impacts?” He cautioned against innovations designed solely for profit at the expense of consumer welfare.
“What’s going to ultimately happen [in Washington, DC]? Who knows? We could know six months from now. We could know things next week. Things have been changing rapidly recently.”
In the interim, the NYDFS will continue processing applications while focusing on its core objectives: market protection, consumer safety, and innovation support.
