The New York State Department of Financial Services (“DFS”) recently issued an industry letter to regulated institutions engaged in virtual currency business activity (“BitLicense Holders”) regarding their plans to prepare for COVID-19.
In the Industry Letter, DFS warned that each regulated institution must have plans to address how it will manage the effects of the COVID-19 outbreak and assess disruptions and other risks to its services and operations. Specifically, DFS requires that each regulated institution submit a response to DFS describing the institution’s plans to manage the risk of disruption to its services and operations, within 30 days from the date of the Letter.
An institution’s preparedness plans should be sufficiently flexible to address a range of possible effects, reflecting the institution’s size, complexity, and activities. The Industry Letter outlined several components that must be included in the plan, including preventative measures to mitigate the risk of operational disruption, a documented strategy addressing the impact of the outbreak in stages, and an assessment of all facilities, systems, policies, and procedures necessary to continue critical operations and services if members of the staff are unavailable for longer periods or are working off-site.
Notably, DFS underscored the risk to BitLicense Holders of the increased threat of cyberattacks and the possible need for heightened security measures, including with regard to the custody of virtual currency assets.
Finally, DFS stated it was essential that regulated institutions assess and monitor the financial risk that may arise from COVID-19, including an assessment of the valuation of assets and investments that may be impacted and the overall impact of COVID-19 on the earnings, profits, capital, and liquidity of the regulated institution.
In short, institutions regulated by DFS, especially BitLicense Holders, must take steps to prepare for and ensure business continuity given the COVID-19 outbreak. We are following developments closely in this space. If you have any questions, please reach out to your Seward & Kissel contact or any member of the Blockchain & Cryptocurrency Group.