On Monday, the New York Department of Financial Services (NYDFS) issued guidance on custodian structures to protect customer funds in the event of a crypto firm’s bankruptcy. New York’s top financial regulator stressed that firms should not commingle customer funds and that customer funds should be segregated in separate accounts.
The collapse of the FTX has prompted the NYDFS to issue guidance on virtual currency custodian regulation
In the wake of the recent collapse of FTX and allegations directed at its co-founder Sam Bankman-Fried and top deputies, the New York Department of Financial Services (NYDFS) has issued guidance detailing that customer assets held by virtual currency businesses must be segregated.
The guidance was issued by NYDFS Superintendent Adrienne Harris and asserts that regulators must apply a “secure regulatory framework” for virtual currency custodians to protect customers and maintain their trust The NYDFS guidance states that virtual currency entities entities (VCEs) to comply with.The four policies and standards are as follows.
- segregation and separate accounting for customer virtual currency,
- limited interest and use of VCE custodians over customers’ virtual currency;
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- sub-custody arrangements; and
- customer disclosure
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“Proper custody of customers’ virtual currency and proper books and records, the VCE Custodian is expected to separately account for and segregate customer virtual currency from the corporate assets of the VCE Custodian and its affiliated entities, both on-chain and in the VCE Custodian’s internal ledger accounts,” the New York regulator detailed.
The regulators further stated that custodians should have a limited interest in the use of customer funds and customer virtual assets.” The NYDFS guidance explains, “When a customer transfers ownership of assets to a VCE custodian for safekeeping purposes, the Department expects the VCE custodian to take ownership only for the limited purpose of performing safekeeping and custodial services.
What do you think about the NYDFS guidance on custodian structures to protect customers in the event of an encryption company’s bankruptcy? Share your thoughts on this topic in the comments section below.
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