New York’s Chief Financial Regulator Mandates Firms to Separate Customers' Crypto Assets from Their Own
New York’s chief financial regulator plans to release new guidance that will mandate companies to separate their own crypto assets from that of customers'.
The New York State Department of Financial Services (NYDFS) will also require state-regulated firms to disclose how they account for clients' digital currency, Reuters reported Monday, citing Adrienne Harris, the superintendent of NYDFS.
"It's timely, but truth be told, it was something we had on our policy roadmap even before FTX," Harris reportedly said.
The move comes amid reports that there was co-mingling of funds between the now-bankrupt cryptocurrency exchange FTX and its trading arm Alameda Research. Alameda was able to quietly use customer funds from FTX using a backdoor that allowed the loan to fly under the radar of investors, employees, and auditors.
John Ray III, the new CEO of collapsed crypto exchange FTX, has also claimed that FTX and Alameda Research commingled user funds, allowing the quant trading firm to use FTX customers' money and make risky financial bets.
The latest guidance is one in a series of crypto-related directives NYDFS has issued in the past year. According to Harris, NYDFS's virtual currency unit has almost 50 employees and is working on hiring more.
New York is among the few states that require businesses that engage in the transmission of fiat currency as well as virtual currency to have both a BitLicense and a traditional money transmitter license. The state also requires firms to undergo examinations making sure they are in line with requirements and comply with know-your-customer, anti-money laundering rules. Harris said:
"While I would never be foolhardy enough to say that no New Yorker will be harmed in all of this, I think it's
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