Companies Should Separate Clients’ Crypto Assets From Their Own: NYDFS

Please fol­low and like us:
Pin Share

The New York State Depart­ment of Finan­cial Ser­vices (NYDFS) urged firms to set apart cus­tomers’ cryp­tocur­ren­cy hold­ings from their own assets.

The watch­dog argued that co-min­gling funds could trig­ger a sig­nif­i­cant finan­cial loss for investors.

The NYDFS’ Recommendation

New York’s finan­cial watch­dog issued guid­ance to state-reg­u­lat­ed com­pa­nies on how they should bet­ter pro­tect clients in the event of poten­tial insol­ven­cy. It out­lined the increas­ing inter­est in cryp­tocur­ren­cies over the past few years and insist­ed that enti­ties should main­tain enhanced con­trol of their cus­tomers’ hold­ings. The agency also believes the mar­ket needs to func­tion under an appro­pri­ate reg­u­la­to­ry framework:

“As stew­ards of oth­ers’ assets, vir­tu­al cur­ren­cy enti­ties (VCE) that act as cus­to­di­ans play an impor­tant role in the finan­cial sys­tem and, there­fore, a com­pre­hen­sive and safe reg­u­la­to­ry frame­work is vital to pro­tect­ing cus­tomers and pre­serv­ing trust.”

The NYDFS urged orga­ni­za­tions to keep con­sumers’ cryp­to pos­ses­sions sep­a­rate from oth­er assets. “It is expect­ed that a VCE Cus­to­di­an will not co-min­gle cus­tomer vir­tu­al cur­ren­cy with any of the VCE Custodian’s own vir­tu­al cur­ren­cy or with any oth­er non-cus­tomer vir­tu­al cur­ren­cy,” the depart­ment added.

They should also release records and main­tain a “clear inter­nal audit trail” to iden­ti­fy peo­ple about any trans­ac­tions involv­ing their ownings. 

The reg­u­la­tor said cus­to­di­ans should not use users’ cryp­to assets to set­tle sep­a­rate finan­cial ser­vices, such as guar­an­tee­ing an oblig­a­tion or extend­ing credit. 

Sub­se­quent­ly, they must “clear­ly dis­close” to clients the gen­er­al terms and con­di­tions under which they keep their stash. 

“Fur­ther, the depart­ment expects a VCE Cus­to­di­an to make its stan­dard dis­clo­sures and cus­tomer agree­ment read­i­ly acces­si­ble to cus­tomers on its web­site, in a man­ner con­sis­tent with New York laws and reg­u­la­tions,” the guid­ance concluded.

Such Measures Should Have Existed Before FTX’s Meltdown

Adri­enne Har­ris – the super­in­ten­dent of NYDFS – opined that the afore­men­tioned guid­ance could pos­i­tive­ly impact the cryp­tocur­ren­cy indus­try and pre­vent future col­laps­es. How­ev­er, she believes the reg­u­la­tor should have act­ed before the demise of FTX.

The exchange filed for bank­rupt­cy in Novem­ber last year after fail­ing to hon­or cus­tomer with­draw­al requests. One of the accu­sa­tions against its for­mer CEO – Sam Bankman-Fried (SBF) – is that his firm co-min­gled users’ funds with Alame­da Research, which even­tu­al­ly harmed numer­ous investors.

The 30-year-old Amer­i­can has plead­ed not guilty to the charges against him. A tri­al set for Octo­ber 2, 2023, will deter­mine whether he played a role in the fallout.

SPECIAL OFFER (Spon­sored)

Binance Free $100 (Exclu­sive): Use this link to reg­is­ter and receive $100 free and 10% off fees on Binance Futures first month (terms).

PrimeXBT Spe­cial Offer: Use this link to reg­is­ter & enter POTATO50 code to receive up to $7,000 on your deposits.

Source link

Please fol­low and like us:
Pin Share

Leave a Reply

Your email address will not be published.