On Monday, the New York Department Of Financial Services (NYDFS) published guidance on custody structures to protect consumer funds in the event of a cryptocurrency company going bust. The top financial regulator in the state stressed that customers should not be allowed to mix their funds with other funds, and that customer funds should be kept separate and accounted for separately.
FTX Collapse Prompts NYDFS To Issue Guidance On Virtual Currency Custodian Regulations
In the aftermath of the collapse of FTX, and the accusations leveled against its cofounder Sam Bankman-Fried, New York Department Of Financial Services (NYDFS) has issued guidance outlining that customer assets held by virtual currency businesses should be segregated.
The guidance was issued by Adrienne Harris, the NYDFS Superintendent, and the regulator emphasized that virtual currency custodians should adhere to a “safe regulatory framework” to protect customers and uphold trust. The NYDFS guidance provides an overview of the four different standards and policies that the NYDFS has in place. Virtual Currency Entities must comply with the following four policies:
- Segregation And Separate Accounting For Client Virtual Currency;
- VCE’s Limited Custodian’s Interest And Client’s Use Of Virtual Currency;
- Subcustody arrangements;
- Client Disclosure.
“In order to properly safeguard client virtual currency and maintain appropriate books and records, a VCE custodian is expected to separately account for and segregate client virtual currency from the corporate assets of the VCE custodian and its affiliated entities, both on-chain and as in the internal ledger of the VCE custodian. accounts”Details New York regulator.
Furthermore, regulators noted that custodians should possess no interest in client funds or the utilization of virtual assets. “When a client transfers possession of an asset to a VCE custodian for custodial purposes, the department expects the VCE custodian to take possession only for the limited purpose of carrying out custodial and escrow services,” This guidance provides additional detail. The NYDFS.
What are your thoughts on the NYDFS guidance on custody structures with regards to protecting customer funds in the event of a cryptocurrency company going bust? Please share your views on this topic in the comments below.
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