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On Monday, the New York Department of Financial Services (NYDFS) issued guidance on custody structures to help protect customer money in the event of a crypto company going bankrupt. New York’s top financial regulator has stressed that firms should not mix customer funds and that customer funds should be segregated with separate accounting.
FTX Collapse Prompts NYDFS to Issue Guidelines on Regulation of Virtual Currency Custodians
Following the recent collapse of FTX and allegations directed against its co-founder, Sam Bankman-Fried, and his senior deputies, the New York Department of Financial Services (NYDFS) issued guidelines detailing that client assets held by a virtual currency business should be separated.
The guidelines were issued by NYDFS Superintendent Adrienne Harris, and the regulator insists virtual currency custodians must enforce a “safe regulatory framework” to protect customers and maintain trust. The NYDFS guidelines provide a summary of four different policies and standards that Virtual Currency Entities (VCEs) must adhere to. The four policies are:
Segregation and separate accounting for the customer’s virtual currency; VCE Custodians Limited interest and use of Customer’s virtual currency; custody agreements; and Customer Disclosure.
To properly safeguard Customer’s virtual currency and maintain proper books and records, a VCE Custodian must account for and segregate Customer’s virtual currency separately from the business assets of the VCE Custodian and its affiliated entities, both on-chain and on the internal ledger accounts of the VCE custodians. , details the New York regulator.
The regulator further stated that custodians should have a limited interest in client funds and the use of a client’s virtual assets. “Where a client transfers possession of an asset to a VCE Custodian for custodial purposes, the Department expects the VCE Custodian to take possession of it solely for the limited purpose of providing custodial and custodial services “, explain the NYDFS guidelines.
Tags in this story accounting, Affiliated Entities, Allegations, Companies, code of conduct, collapse, Mix, Compliance, Company Assets, crypto company, Custody Structures, client assets, Client Disclosure, Client Funds, customer protection, Expectations, financial regulator, ftx, Governance, Advice, guidelines, Insolvency, Internal ledger accounts, jurisdiction, legal framework, Limited interest, New York regulator, NYDFS, Onchain, Oversight, policy, Regulations, restrictions , Custody, Sam Bankman-Fried, sbf, Segregation, Standards, Bylaws, subcustody agreements, supervision, VCE custodian, virtual assets, virtual currency
What do you think of the NYDFS guidance on custodial structures for protecting clients in the event of a crypto firm’s insolvency? Share your thoughts on this topic in the comments section below.
Jamie Redman
Image credits: Shutterstock, Pixabay, Wiki Commons
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