The warning was issued by the New York State Department of Financial Services (NYDFS) on Monday as part of an update to its regulations designed to protect customers from the insolvency of digital asset firms.
“The DFS’s virtual currency regulation has protected New Yorkers since 2015,” said NYDFS Superintendent Adrienne Harris. “Today’s advisory reminds DFS-regulated virtual currency firms of our consumer asset protection objectives.”
The NYDFS expects a company to take control of a client’s asset “only for the restricted purpose of carrying out custody and safekeeping services and that it will not thereby establish a debtor-creditor relationship with the customer,” according to the modified guidance.
Companies must also disclose to customers the terms and conditions of their products and services, including how they separate and account for cryptocurrency holdings.
The announcement comes as the crypto sector continues to grapple with the fallout from a significant crash caused, in part, by user asset mixing.
As I discussed with Stifel CEO Ron Kruszeweski late last year, the issues confronting the crypto industry — highlighted by the demise of FTX — revolve around the role of consumer protection.
