In light of the ongoing Covid-19 pandemic impacting financial markets and communities across the globe the New York Department of Financial Services (NYDFS) has issued guidelines for digital asset exchanges operating in the state to provide or develop contingency plans for disaster recovery, which are normally required for similar fiat-based regulated financial services.
In a publication this Tuesday, the Department asked the companies to provide details of their preparedness plans in place to address the operational and financial risk posed by the outbreak of a novel coronavirus known as “COVID-19.” The preparedness plans must include measures to tackle operational disruption, and a leveled approach in strategy addressing the impact of the outbreak.
The regulator also indicated that exchanges must make plans for potential increased risks of cyber attacks and fraud due to the outbreak and need to carefully access the preparedness of critical third-party service providers.
Considering the recent market moves in digital assets the regulator is also concerned about the viability of exchanges being able to continue to provide trading and financial services, as some projects in decentralized finance space (DeFi) have experienced massive shortfalls, with MakerDAO now facing $4M in bad debts as a result of the recent market activity.
It should be expected that some exchanges will fall short of the requirements or guidance given by the NYS regulator and any future assessment of the readiness of digital asset exchanges to handle such dramatic events as an outbreak of disease will bring to light the adequacy of the policies practiced in the crypto sector, as opposed to the long-regulated fiat financial trading world. If shortfalls are identified, they will surely need to be mitigated quickly, as the current pandemic health crisis is already presenting big challenges to all market participants.