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

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On Monday, New York’s Department of Financial Services (NYDFS) published guidance on custodial structures to help protect customers’ money in the event of a crypto firm’s bankruptcy. New York’s top financial regulator emphasized that businesses should not mix customer funds and that customer funds should be segregated with separate accounting.

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

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Following the recent collapse of FTX and allegations against its co-founder, Sam Bankman-Fried, and top representatives, the New York Department of Financial Services (NYDFS) issued guidance that customer assets held by a virtual currency business should be segregated. .

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The guidance was issued by NYDFS Superintendent Adrienne Harris, and the regulator stresses that virtual currency custodians need to implement a “secure regulatory framework” to maintain customer safety and trust. The NYDFS guidance summarizes four different policies and standards that virtual currency entities (VCEs) must adhere to. The four policies are as follows:

  • separate and distinct accounting for Customer virtual currency;
  • VCE Custodian’s limited interest in and use of Customer Virtual Currency;
  • sub-custody arrangements; And
  • Customer Disclosure.

“In order to properly hold Customer Virtual Currency and maintain proper books and records, a VCE Custodian is expected to separate Customer Virtual Currency from the corporate assets of the VCE Custodian and its affiliated entities in a segregated account and segregate on the custodian’s internal ledger accounts,” New York regulatory details.

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The regulator further said that the custodian should have a limited interest in the use of customer funds and virtual assets of the customer. NYDFS guidance explains, “When a client transfers possession of an asset to a VCE custodian for purposes of safekeeping, the Department expects the VCE custodian to take possession only for the limited purpose of performing custody and security services.” “

What are your thoughts on the NYDFS’ guidance on custodial structures for client protection in the event of a crypto firm bankruptcy? Share your thoughts on this topic in the comment section below.

Credit : news.bitcoin.com

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