NYDFS Releases Guidance on Importance of Segregation and Separate Accounting for Customer Funds in Crypto Industry

On Monday, the New York Department of Financial Services (NYDFS) published guidance connected custodial structures to assistance support customers’ wealth if a crypto steadfast goes bankrupt. New York’s apical fiscal regulator stressed that businesses should not commingle lawsuit funds and that lawsuit funds should beryllium segregated with abstracted accounting.

FTX Collapse Prompts NYDFS to Issue Guidance connected Virtual Currency Custodian Regulations

Following the caller illness of FTX and allegations directed astatine its co-founder, Sam Bankman-Fried, and apical deputies, the New York Department of Financial Services (NYDFS) released guidance detailing that lawsuit assets held by a virtual currency concern indispensable beryllium segregated.

The guidance was issued by Adrienne Harris, the superintendent of the NYDFS, and the regulator insists that virtual currency custodians request to use a “safe regulatory framework” to support customers and sphere trust. The NYDFS guidance provides a summary of 4 antithetic policies and standards that virtual currency entities (VCEs) should adhere to. The 4 policies are arsenic follows:

• Segregation of and Separate Accounting for Customer Virtual Currency;
• VCE Custodian’s Limited Interest successful and Use of Customer Virtual Currency;
• Sub-Custody Arrangements; and
• Customer Disclosure.

“To custody lawsuit virtual currency decently and support due books and records, a VCE custodian is expected to separately relationship for and segregate lawsuit virtual currency from the firm assets of the VCE custodian and its affiliated entities, some onchain and connected the VCE custodian’s interior ledger accounts,” the New York regulator details.

The regulator further said that custodians should person constricted involvement successful lawsuit funds and successful the usage of a client’s virtual assets. “When a lawsuit transfers possession of an plus to a VCE custodian for the purposes of safekeeping, the section expects that the VCE custodian volition instrumentality possession lone for the constricted intent of carrying retired custody and safekeeping services,” the NYDFS guidance explains.

What are your thoughts connected the NYDFS’s guidance connected custodial structures for lawsuit extortion successful the lawsuit of a crypto firm’s insolvency? Share your thoughts astir this taxable successful the comments conception below.

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