Key Points:
- Guidelines on how licensed crypto businesses should manage customer funds in the event of “insolvency or similar process” have been published by the New York Department of Financial Services, or NYDFS.
- NYDFS further stated that all licensed businesses that custody assets must “keep suitable books and records” and publish information about their goods and services in terms and conditions that are made available to customers.
- The announcement came after a number of American-based cryptocurrency exchanges, including FTX, BlockFi, Voyager Digital, and Genesis, filed for Chapter 11 bankruptcy protection in response to some alleged liquidity concerns.
Guidelines on how licensed crypto businesses should manage customer funds in the event of “insolvency or similar process” have been published by the New York Department of Financial Services, or NYDFS.
NYDFS superintendent Adrienne Harris stated in a Jan. 23 statement that cryptocurrency companies and exchanges operating under a BitLicense, which is required in New York state, should separate corporate funds from users’ virtual currency holdings both on-chain and in the “internal ledger accounts” of the company’s custodian. The regulator states that cryptocurrency companies must only hold user money “for the restricted purpose of carrying out custody and safekeeping services”:
“A [virtual currency entity’s] customer agreement should make clear the parties’ intentions to enter into a custodial relationship, rather than a debtor-creditor relationship.”
The NYDFS further stated that all licensed businesses that custody assets must “keep suitable books and records” and publish information about their goods and services in terms and conditions that are made available to customers. According to Harris, the advice was intended to ensure the “safekeeping of customer assets.”
The announcement came after a number of American-based cryptocurrency exchanges, including FTX, BlockFi, Voyager Digital, and Genesis, filed for Chapter 11 bankruptcy protection in response to some alleged liquidity concerns. Despite bankruptcy procedures, many former consumers of the crypto companies have not been compensated.
In reference to New York’s BitLicense system, Harris said during a speech in November 2022 that federal lawmakers should take into account a “framework nationwide that looks like what New York has” in terms of crypto regulation. Additionally, the NYDFS has previously published regulatory guidelines for stablecoins backed by the US dollar.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your research before investing.
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