On Wednesday, The New York State Department of Financial Services released new rulesLicensees of cryptocurrency companies that issue stablecoins will need to establish reserve requirements as well as independent monthly audits.

This guidance applies to current BitLicense holders, who are licensed for the operation of virtual currencies businesses in New York State. It also affects limited purpose trust chart holders who issue stablecoins supported by fiat money.

It stated that stablecoins should be fully backed and redeemable by investors. They also specified the requirements of those reserves. This included the types of assets that should be contained and the specific requirement that the reserves not be “segregated” from proprietary assets. A certified public accountant independent of the issuer should perform monthly audits.

The lack of transparency surrounding trading and reserves for these virtual assets, along with market participants’ dependence on them to allow trading in crypto protocols have led regulators to focus on stablecoins over the past months.

Following the rapid fall of TerraUSD, the dollar-pegged stablecoin for Terra networks, there was a meteoric rise that eventually led to $60 billion in investor lossesRegulators’ focus on this space has also been sharpened.

TerraUSD is different from the stablecoins addressed in the New York regulators’ guidance on Wednesday – it’s a decentralized algorithmic stablecoin rather than one run by a single entity and backed by fiat currency – but the saga has raised the profile of these crypto assets and has bruised the industry’s reputation.

Adrienne Harris (superintendent of New York State Department of Financial Services) stated that the department is now transparent in communicating expectations to the market for stablecoin issuers. She spoke on CNBC’s “Adriana Harris” program.Crypto World.” [Watch CNBC’s interview with Harris at 3 p.m. ET on Crypto World.]

“The DFS have been managing the space since a very long time. But it’s an evolving, fast-moving space so we as prudential regulators must keep up with that innovation.” she stated.

New York’s most difficult regulator

To regulate cryptocurrency businesses, BitLicense was established by the DFS in 2015.

Harris explained that stablecoin guidance was built on the VOLT transformation initiative, which she initiated to alleviate delays in regulatory processes for virtual currency companies supervised under her supervision by the agency. Vision, Operation, Leadership and Technology are the three components of VOLT. The initiative includes a number of steps to meet each one.

As the cryptocurrency industry develops, the Superintendent stated that she will make sure the agency’s system and processes are more efficient. The technology of the regulator will be upgraded, and blockchain analytics used to hire talent.

Harris stated, “Bringing in this talent will help us accelerate licensing without sacrificing regulatory rigor and then help keep us abreast as the space continues to move.”

Many are still unsure if New York will welcome the crypto sector, even though Harris is only six months in his new job. Eric Adams, New York City’s mayor has made clear his intention to welcome the crypto industry. make the city a crypto hub.

New York’s new financial regulator is also being criticised by those who believe it could lead to the loss of talent in other technology hubs such as Miami and Austin, or even states that have crypto-forward regulatory policies like Wyoming. Harris stated that BitLicenses are still in demand and noted that three BitLicenses were issued this year.

Harris claimed that “half of all venture capital investment made into the crypto space by 2021 was located in New York, and it is regulated.” We see that New York has a lot of talent and companies because it is regulated, clear and well-regulated. It’s our job to protect the companies and talent in New York.