NYDFS advises crypto firms not to commingle user and corporate funds in the event of insolvency

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“A VCE's lawsuit statement should marque wide the parties’ intentions to participate into a custodial relationship, alternatively than a debtor-creditor relationship," said the NYDFS.

NYDFS advises crypto firms not to commingle idiosyncratic and firm funds successful the lawsuit of insolvency

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The New York Department of Financial Services, oregon NYDFS, has released guidelines connected however licensed crypto firms should grip lawsuit assets should they look “insolvency oregon akin proceeding”.

In a Jan. 23 announcement, NYDFS superintendent Adrienne Harris said crypto firms and exchanges operating nether a BitLicense — required successful New York authorities — should segregate firm funds from users’ virtual currency holdings some on-chain and successful the “internal ledger accounts” of the company’s custodian. According to the regulator, crypto firms are expected to clasp users’ assets “only for the constricted intent of carrying retired custody and safekeeping services”:

“A [virtual currency entity’s] lawsuit statement should marque wide the parties’ intentions to participate into a custodial relationship, alternatively than a debtor-creditor relationship.”

In summation to these guidelines, NYDFS added that each licensed firms custodying assets should “maintain due books and records” arsenic good arsenic disclose accusation related to its products and services successful presumption and conditions disposable to customers. Harris said the guidance was aimed astatine the “safekeeping of lawsuit assets”.

#ICYMI: Superintendent Adrienne A. Harris released Regulatory Guidance to amended support customers successful the lawsuit of an insolvency oregon akin proceeding. Read much here: https://t.co/Nstz39M9Wo pic.twitter.com/FJ0fbrJBxH

— NYDFS (@NYDFS) January 23, 2023

The announcement followed respective crypto exchanges based successful the United States filing for Chapter 11 bankruptcy protection aft immoderate reported liquidity issues, including FTX, BlockFi, Voyager Digital, and Genesis. Many erstwhile customers of the crypto firms person not been made full amid bankruptcy proceedings.

Harris said during a November 2022 speech that lawmakers astatine the national level should see a “framework nationally that looks similar what New York has” successful presumption of crypto regulation, referring to the state’s BitLicense regime. The NYDFS has besides antecedently released regulatory guidance for U.S. dollar-backed stablecoins.

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