NYDFS Issues Guidance on the Value of Separate Accounting and Segregation for Customer Funds in the Crypto Industry

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To help consumers’ money be protected in the event that a cryptocurrency company goes out of business, the New York Department of Financial Services (NYDFS) announced guidelines on custodial arrangements on Monday.

The top financial regulator in New York emphasized that companies shouldn’t mix consumer funds and that they should be kept separate with separate accounting.

The New York Department of Financial Services (NYDFS) issued recommendations outlining the requirement that customer assets held by a virtual currency business be segregated in the wake of the recent collapse of FTX and claims made against its co-founder, Sam Bankman-Fried, and top assistants.

The instruction was provided by the superintendent of the NYDFS, Adrienne Harris, who insisted that virtual currency custodians must implement a “secure regulatory framework” to safeguard clients and maintain trust.

VCE Custodian’s Limited Interest in and Use of Customer Virtual Currency; Segregation of and Separate Accounting for Customer Virtual Currency;

The New York regulator specifies that “a VCE custodian is expected to separately account for and segregate customer virtual currency from the corporate assets of the VCE custodian and its affiliated entities, both onchain and on the VCE custodian’s internal ledger accounts” in order to custody customer virtual currency properly and maintain appropriate books and records.

In addition, the regulator advised custodians to minimize their involvement with client funds and the use of virtual assets.

The NYDFS advice states, “The department expects that the VCE custodian will take possession only for the restricted purpose of carrying out custody and safekeeping services when a client transfers control of an asset to a VCE custodian for the purposes of safekeeping.

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