• NYDFS tells state-regulated banks to use blockchain analytics for crypto activity
• Tools expected for wallet screening, funds verification, ecosystem monitoring and enhanced due diligence
• Guidance builds on 2022 recommendations to virtual-currency firms
• Regular reassessment urged as business models and counterparties change
• Controls must be tailored to each bank’s risk appetite and operations
• Aim is to deter money laundering, terrorist financing and sanctions evasion
• Enforcement backdrop includes $48.5m Paxos penalty and $40m Block fine
• Harris says banks must onboard new technologies to mitigate new risks
• Regulator seeks clear expectations while keeping firms competitive
• Message to banks is adopt on-chain visibility or face higher risk

The New York Department of Financial Services on Wednesday issued guidance directing state-regulated banks to incorporate blockchain analytics when evaluating or conducting cryptocurrency-related activity, expanding the agency’s expectations for anti-money-laundering and sanctions controls as digital assets spread through the financial system.

The notice urges institutions to deploy blockchain tools for customer wallet screening and funds verification, continuous monitoring of the crypto ecosystem for illicit-finance exposure, enhanced due diligence that compares expected against actual customer activity, and product-level risk assessments before launching crypto services.

“As traditional banking institutions expand into virtual currency activities, their compliance functions must adapt, onboarding new tools and technologies to mitigate new and different risks,” Superintendent Adrienne Harris said in a statement accompanying the release.

NYDFS framed the guidance as a next step after its 2022 recommendations to virtual-currency businesses, this time aimed at banks that are considering or already offering digital-asset products. 

The agency said a friendlier regulatory posture has drawn more firms to explore crypto, making regular reassessment of risk frameworks essential “in light of changing business models, new customer types, and new market entrants.”

According to the department, emerging technologies introduce threats that require new capabilities to identify and mitigate risk. 

Blockchain analytics, it said, can strengthen programmes to prevent money laundering, terrorist financing and sanctions evasion as adoption accelerates. 

The department stressed that controls should be tailored to each institution’s business model, risk appetite and operations rather than applied as a one-size-fits-all overlay.

The push arrives alongside a string of enforcement actions. In August, NYDFS secured a $48.5 million penalty from Paxos over due-diligence failures tied to its former partner Binance and broader shortcomings in its anti-money-laundering programme. 

In April, the agency cited payments company Block for weak oversight of Cash App, including failures in bitcoin transaction monitoring; the company agreed to pay $40 million.

“As a leader in the regulation of virtual currency, DFS will continue to set clear and transparent expectations for institutions, to protect consumers and safeguard market integrity, while also ensuring New York-regulated banking organizations can remain resilient and competitive,” Harris said.

For banks weighing digital-asset ventures, the message is unambiguous: embrace blockchain visibility or accept higher compliance risk. 

The department’s framework signals that traditional controls must be re-engineered for transparent, on-chain markets, with analytics embedded across onboarding, monitoring and third-party oversight.