The New York Department of Financial Services has released a new guideline to regulate how firms handle customer assets.
The department takes the bull by the horn as it reacts to new revelations in the demystification of FTX.
Digital asset analysts laud the move to add more data regulations to protect user assets though some feel it’s “over-controlling.”
As more revelations trickle in from the FTX saga, authorities around the world are ramping up regulations to avoid a repeat of the infamous incident.
The New York Department of Financial Services (NYDFS) has issued a new guideline on how digital asset firms are to handle user assets. In a letter to the industry, the department stated that user assets should be separated from each other to avoid commingling with the firm’s assets.
The statement also addressed how firms should apply customer funds and make proper disclosures to clients when applying user funds in line with best practices.
“ As stewards of others’ assets, virtual currency entities that act as custodians […] must have robust processes in place, akin to traditional financial service providers”, per the statement.
The robust statement by the NYDFS warns custodians to keep separate asset records both on-chain and in the firm’s internal records. To keep users informed on the status of their assets, custodians are now required to furnish customers with written notices that show the arrangements, application of funds, and how those funds have been separated from others, as well as the interest accrued, if any.
Furthermore, the regulation now makes user funds held by custodians for only safekeeping “ without creating a debtor-creditor relationship with the customer” when funds are transferred.
The regulations apply to cryptocurrency-related firms that hold a BitLicense, a license issued by New York authorities to regulate the activities of virtual asset companies.
Mixed reactions follow the regulation
While many have lauded and pushed digital asset regulations in recent months, several quarters have maintained scepticism over previous regulatory decisions. The NYDFS decision to roll out BitLicense in 2015 is a classic example leading to Kraken’s pull out of the state.
Last year, the CEO of Kraken, Jesse Powell, continued to criticize BitLicenses as a burden to digital asset firms.
“After all this time, I mean, if we just looked back and did a study of the economic damage done by the BitLicense, I’m sure it would be tremendous in the billions of dollars.”
However, those in support of the regulations and BitLicenses are more and point to the protection of user assets even if it slows the pace of development in the sector.