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As part of its effort to boost consumer protections in the cryptocurrency space, the New York State Department of Financial Services revealed fresh guidance Monday requiring companies to not co-mingle customers’ crypto assets.
The move followed the alleged co-mingling of assets at failed crypto exchange FTX (FTT-USD) and its sister trading firm Alameda Research, a dynamic that drove potentially billions of dollars worth of losses for customers.
In addition, state-regulated firms will be required to disclose to customers how they account for customers’ crypto by maintaining proper books and records, according to the release.
The demise of FTX and the bankruptcies that followed shortly thereafter have drawn increased regulatory scrutiny of the crypto industry. Caroline Ellison, the former CEO of Alameda, admitted that she conspired with others to use billions of dollars of customers’ funds from FTX while misleading lenders about the true nature of the companies’ financial relationship.
Hence why the NYDFS is looking to demand that firms separate customers’ crypto assets from their own. About a month after FTX’s downfall in November 2022, the U.S. Securities and Exchange Commission inspected crypto-related firms’ audited proof of reserves, which allow centralized exchanges (like FTX) to showcase their solvency as well as the value of their reserves.
In June 2022, the NYDFS laid out its first stablecoin guidance.
