New York Forces Banks to Use Blockchain Analytics in Fight Against Crypto Crime

New York's financial regulatory body, the New York State Department of Financial Services (NYDFS), has mandated that banks integrate blockchain analytics into their compliance frameworks to address the growing risks associated with virtual currency activities. The directive, issued on September 17, 2025, follows a surge in digital asset adoption by banks and builds on prior guidance for licensed crypto businesses. It underscores the need for traditional banking institutions to modernize their compliance practices to combat money laundering, sanctions evasion, and other illicit activities.

Superintendent Adrienne Harris emphasized that as banks expand into virtual currency activities, they must adopt new tools and technologies to mitigate risks. The guidance explicitly calls for the use of blockchain analytics to screen customer wallets, verify the source of funds from virtual asset service providers, and monitor exposure to potential risks. Institutions are expected to tailor their risk-management frameworks to their specific business models and reassess them regularly as the market evolves.

The NYDFS highlighted that blockchain analytics can provide actionable intelligence, similar to tools already in use by licensed virtual currency businesses. Banks are advised to compare customers' expected activity with actual transactions and assess risks tied to new crypto services or products. The regulator emphasized that the guidance is not a formal rulemaking but a supervisory expectation, reinforcing its role in shaping a robust compliance landscape for digital assets.

The directive is part of NYDFS’s broader strategy to protect New York’s financial system and modernize oversight of both traditional and digital financial services. In parallel with blockchain monitoring, the department is also enforcing stricter cybersecurity regulations. Banks and other covered entities must comply with updated provisions of New York’s cybersecurity regulation by November 1, 2025, including mandatory multi-factor authentication (MFA) for internal system access. The MFA rule, first amended in 2023, aims to reduce the risk of credential-based attacks and data breaches.

The increasing adoption of blockchain analytics in regulatory efforts is evident beyond New York. For instance, in March 2025, Chainalysis exposed financial links between Mexican drug cartels and Chinese suppliers of fentanyl precursors through over $37.8 million in suspicious crypto transactions from 2018 to 2023. This highlights the growing importance of blockchain analytics in tracking criminal activity, especially in cross-border transactions that are often difficult to trace using traditional methods.

In another high-profile case, Greece’s Anti-Money Laundering Authority froze funds linked to the $1.5 billion Bybit hack attributed to North Korea’s Lazarus Group, using Chainalysis tools to trace the stolen assets. Nearly one-third of the stolen assets remain traceable, underscoring the effectiveness of blockchain analytics in complex laundering cases. These efforts are part of a global trend where regulators and law enforcement are increasingly relying on advanced tools to combat crypto-related crimes.

The NYDFS directive also aligns with broader efforts to enhance the oversight of stablecoins and other digital assets. For example, the U.S. Treasury sanctioned Russia’s Aeza Group in July 2025 after Chainalysis tied a TRON wallet to ransomware operators and darknet vendors. Meanwhile, Tether announced a new investment in Crystal Intelligence, a blockchain analytics firm used by regulators and law enforcement to identify illicit transactions. This partnership builds on Tether’s joint Scam Alert platform, which flags fraudulent wallet addresses connected to hacks and phishing schemes.

As the global regulatory landscape continues to evolve, countries are adopting distinct approaches to managing digital assets. In the U.S., the GENIUS Act focuses primarily on stablecoins, setting high compliance standards for foreign stablecoins seeking access to U.S. markets. In contrast, the European Union’s Markets in Crypto-Assets (MiCA) regulation provides a broader framework covering most crypto assets and service providers. Both regulatory frameworks emphasize consumer protection and market stability, with MiCA offering a passporting system for EU-wide operations and the GENIUS Act establishing a hybrid federal-state oversight model for U.S. stablecoins.

The NYDFS’s move to mandate blockchain analytics represents a significant step in aligning regulatory practices with the realities of a rapidly evolving financial ecosystem. As virtual currencies become increasingly integrated into banking operations, the ability to monitor and mitigate associated risks will remain a central challenge. By leveraging blockchain analytics, New York is reinforcing its position as a leading regulatory authority in the U.S., setting a precedent for other states and jurisdictions to follow.