In General, under New York securities laws, the financial services company or broker is responsible for complying with New York securities laws. See above section on securities-related laws. New York has not yet published laws defining smart contracts and so it is not clear who bears liability if a smart contract goes wrong. However, there is a case to be made that liability under a smart contract would be governed by the terms of the smart contract itself, as is the case for traditional contracts.

Aside from smart contracts, under New York’s BitLicense, the Licensee is responsible with respect to any aspect of its business for establishing and maintaining a written business continuity and disaster recovery (“BCDR”) plan reasonably designed to ensure the availability and functionality of the Licensee’s services in the event of an emergency or other disruption to the Licensee’s normal business activities. Under these regulations, the Licensee is responsible in case something goes wrong. The BCDR plan, at a minimum, shall:

1. Identify documents, data, facilities, infrastructure, personnel, and competencies essential to the continued operations of the Licensee’s business;
2. Identify the supervisory personnel responsible for implementing each aspect of the BCDR plan;
3. Include a plan to communicate with essential Persons in the event of an emergency or other disruption to the operations of the Licensee, including employees, counterparties, regulatory authorities, data and communication providers, disaster recovery specialists, and any other Persons essential to the recovery of documentation and data and the resumption of operations;
4. Include procedures for the maintenance of back-up facilities, systems, and infrastructure as well as alternative staffing and other resources to enable the timely recovery of data and documentation and to resume operations as soon as reasonably possible following a disruption to normal business activities;
5. Include procedures for the back-up or copying, with sufficient frequency, of documents and data essential to the operations of the Licensee and storing of the information off site;
6. Identify third parties that are necessary to the continued operations of the Licensee’s business.

The Licensee is also responsible to disclose in clear, conspicuous, and legible writing in the English language and in any other predominant language spoken by the customers of the Licensee, all material risks associated with its products, services, and activities and Virtual Currency generally, including at a minimum, that:

1. Virtual Currency is not legal tender, is not backed by the government, and accounts and value balances are not subject to Federal Deposit Insurance Corporation or Securities Investor Protection Corporation protections;
2. Legislative and regulatory changes or actions at the state, federal, or international level may adversely affect the use, transfer, exchange, and value of Virtual Currency;
3. Transactions in Virtual Currency may be irreversible, and, accordingly, losses due to fraudulent or accidental transactions may not be recoverable;
4. Some Virtual Currency transactions shall be deemed to be made when recorded on a public ledger, which is not necessarily the date or time that the customer initiates the transaction;
5. The value of Virtual Currency may be derived from the continued willingness of market participants to exchange Fiat Currency for Virtual Currency, which may result in the potential for permanent and total loss of value of a particular Virtual Currency should the market for that Virtual Currency disappear;
6. There is no assurance that a Person who accepts a Virtual Currency as payment today will continue to do so in the future;
7. The volatility and unpredictability of the price of Virtual Currency relative to Fiat Currency may result in significant loss over a short period of time;
8. The nature of Virtual Currency may lead to an increased risk of fraud or cyber attack;
9. The nature of Virtual Currency means that any technological difficulties experienced by the Licensee may prevent the access or use of a customer’s Virtual Currency; and
10. Any bond or trust account maintained by the Licensee for the benefit of its customers may not be sufficient to cover all losses incurred by customers.

More details on the New York State Department of Financial Service’s Regulations can be found in Title 23, Chapter 1, Part 200, Regulations of the Superintendent of Financial Services, Virtual Currencies.

Sources

• Title 23, Chapter 1, Part 200, Regulations of the Superintendent of Financial Services, Virtual Currencies