New Guidelines from NYDFS: Protecting Crypto Assets in Insolvency

Understanding NYDFS’s New Guidelines

The New York Department of Financial Services (NYDFS) has just dropped some rules that are making waves in the crypto world. The superintendent, Adrienne Harris, announced that all licensed crypto firms need to step up their game to protect customer assets if they ever find themselves dancing dangerously close to insolvency. Spoiler alert: It’s not just for fun, folks!

Segregation is Key

In a bid to keep customer assets safe, Harris emphasized the importance of separating customer funds from corporate money, both online and in the internal records of the companies holding these assets. This isn’t just an accountant’s dream; it’s a legal necessity under the new guidelines. Think of it as keeping your snacks and your dog’s treats in different containers—no one wants a mix-up when things get heated!

The Custodial Relationship

Hands up if you’ve ever shaken hands on a deal that went south. We’ve all been there. To avoid confusion, Harris insists that customer agreements should clearly outline that a custodial relationship is being formed—no debtor-creditor role-playing, please! This means that firms are to hold customers’ assets solely for safekeeping, keeping everything as crystal clear as a fresh glass of lemonade on a summer day.

Document Everything

All the paperwork needs to be tip-top too. Harris wants licensed firms to keep meticulous records of their operations, ensuring they can always account for where the customers’ assets are hanging out. In other words, if you can’t find it in the records, it might as well be burning in a trash can!

A Response to Recent Bankruptcies

In case you missed it, the announcement comes on the heels of several high-profile crypto exchanges filing for Chapter 11 bankruptcy, including the notorious FTX. With customers still left feeling like they’re waiting for a late bus, the NYDFS is trying to ensure that if the bus does crash, the passengers—aka the customers—aren’t left in the lurch.

Looking Forward: A National Framework?

Harris has suggested that there should be a broader, more cohesive framework for crypto regulation at the national level, akin to New York’s BitLicense. The aim? A uniform approach to protecting customers across the board. Because who wouldn’t prefer a world where you don’t have to read 50 different sets of rules for your digital assets?