Crypto custodians have been mandated to separate customer and corporate assets.
The New York Department of Financial Services (NYDFS) has released new guidelines to protect customers’ assets in the crypto industry. The new regulations require a distinct separation of customers’ assets from the company’s funds on any of their storage platforms.
This new regulation became necessary after a series of bankruptcies in the industry that has left several customers suffering for no fault of theirs. As a result, the regulator has mandated that both on-chain and off-chain assets storage must entail that both categories of funds are not mixed together.
As noted in a document titled “Virtual Currency Guidance”, signed by Adrienne A. Harris, NYDFS Superintendent of Financial Services, the purpose of the new rule is to emphasize sound custody and disclosure practices. Such will ensure that customers are well protected against the risks of insolvency and other similar challenges.
The new rule also provides more clarity in terms of standards and practices that will ensure that virtual currency entities (VCEs) will provide advanced customer protection in terms of asset custody. NYDFS conditions are consistent with the BitLicense and limited purpose trust company frameworks.