New York regulators urge banks to leverage blockchain to address crypto risks

Emerging technologies bring new and constantly evolving threats, which require new tools to address them.

Written by: Blockchain Knight

The top financial regulator in New York has recommended that all banks expand their use of blockchain analytics technology when dealing with cryptocurrencies.

In an industry letter sent on September 17 to New York state-chartered banks and foreign branches operating in New York, the regulator noted that such tools can help institutions better manage risks related to XI money, sanctions violations, and other illegal activities.

Adrienne Harris, head of the Department of Financial Services, stated that this technology has already proven effective for licensed cryptocurrency companies, and banks that are directly involved in digital asset business or engage in crypto activities through clients should also consider adopting it.

The department initially issued guidance on blockchain analytics in April 2022 for companies holding state cryptocurrency licenses.

Harris said that since then, banks have shown "growing interest in and exposure to cryptocurrency," making it necessary to implement similar safeguards.

The regulator recommends that banks use blockchain analytics technology to screen customer wallets, verify the sources of crypto-related funds, monitor activities across the entire digital asset ecosystem, and assess counterparties such as digital asset service providers.

The regulator also encourages banks to compare differences between expected and actual activities, use network-wide intelligence for risk assessments, and weigh the risks of launching new cryptocurrency products.

The department emphasized that these application examples are not an exhaustive list, and control measures should be tailored to each bank's risk appetite and operational characteristics.

Harris urged institutions to regularly update their compliance frameworks as the market, clients, and technology evolve.

The notice stated: "Emerging technologies bring new and constantly evolving threats, which require new tools to address them."

The notice added that blockchain analytics technology can help banks protect the financial system from threats such as terrorist financing and sanctions evasion.

The guidance does not change existing state or federal laws, but highlights that regulators are pushing traditional banks to adopt the same risk monitoring standards that have long applied to licensed crypto companies.