On Monday, the New York Department of Financial Services (NYDFS) released guidance on custody structures to help protect client money if a cryptocurrency company goes bankrupt. New York’s top financial regulator stressed that companies should not commingle client funds and that client funds should be segregated with separate accounting.
FTX Collapse Prompts NYDFS to Issue Guidance on Virtual Currency Custodian Regulations
Following FTX’s recent collapse and allegations leveled at its co-founder, Sam Bankman-Fried, and top lawmakers, the New York Department of Financial Services (NYDFS) released guidance detailing that client assets held by a virtual currency business should be segregated.
The guidance was issued by Adrienne Harris, the superintendent of the NYDFS, and the regulator insists that virtual currency custodians must apply a “safe regulatory framework” to protect customers and preserve trust. The NYDFS guidance provides a summary of four different policies and standards that Virtual Currency Entities (VCEs) must adhere to. The four policies are as follows:
- Segregation and Separate Accounting for Client Virtual Currency;
- VCE’s Limited Custodian’s Interest and Client’s Use of Virtual Currency;
- subcustody arrangements; Y
- 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 the New York regulator.
The regulator further said that custodians should have a limited interest in client funds and the use of a client’s 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,” the guidance explains. of the NYDFS.
What do you think about the NYDFS guidance on custody structures for client protection in the event of the insolvency of a cryptocurrency company? Share your thoughts on this topic in the comments section below.
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