New York's financial regulator sets sights on crypto firms mixing funds with customer assets in the wake of FTX fiasco
- The New York Department of Financial Services published a set of guidelines for crypto firms on Monday.
- The agency reiterated that companies should keep clients' funds separate to protect customers.
The New York Department of Financial Services (NYSDFS) released a set of guidelines for crypto firms on Monday and reiterated that firms should keep clients' assets separate to protect them in case a company becomes insolvent.
The regulator's post comes after FTX's bankruptcy, or what US prosecutors are calling "one of the biggest financial frauds in American history."
The crypto exchange, which was founded by Sam Bankman-Fried, allegedly misused billions in customer deposits for daily operations at sister trading firm Alameda Research. The disgraced founder has pleaded not guilty to eight charges related to the firm's collapse in New York, including wire fraud and campaign finance violations.
"As stewards of others' assets, virtual currency entities ('VCE') that act as custodians ('VCE 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 NYSDFS said in a statement.
The agency said the guidance is an attempt to "offer greater clarity regarding standards and practices." The guidelines will help to "ensure that VCE Custodians are providing a high level of customer protection with respect to asset custody under the BitLicense and limited purpose trust company framework."
Companies that offer crypto-related services must have a certain business license to operate in the state. This is called a BitLicense and is issued by the NYSDFS.
NYSDFS has cracked down on a number of crypto-related firms recently.
The agency announced a $100 million settlement with Coinbase over the firm's compliance with rules to prevent money laundering earlier this month.
And before that, Robinhood Market's crypto arm was slapped with a $30 million fine from the department, which alleged the company violated consumer protection, anti-money laundering, and cybersecurity rules.