New York’s chief financial regulator plans to release new guidance that will mandate companies to separate their own crypto assets from that of customers’.
The New York State Department of Financial Services (NYDFS) will also require state-regulated firms to disclose how they account for clients’ digital currency, Reuters reported Monday, citing Adrienne Harris, the superintendent of NYDFS.
“It’s timely, but truth be told, it was something we had on our policy roadmap even before FTX,” Harris reportedly said.
The move comes amid reports that there was co-mingling of funds between the now-bankrupt cryptocurrency exchange FTX and its trading arm Alameda Research. Alameda was able to quietly use customer funds from FTX using a backdoor that allowed the loan to fly under the radar of investors, employees, and auditors.
John Ray III, the new CEO of collapsed crypto exchange FTX, has also claimed that FTX and Alameda Research commingled user funds, allowing the quant trading firm to use FTX customers’ money and make risky financial bets.
The latest guidance is one in a series of crypto-related directives NYDFS has issued in the past year. According to Harris, NYDFS’s virtual currency unit has almost 50 employees and is working on hiring more.
New York is among the few states that require businesses that engage in the transmission of fiat currency as well as virtual currency to have both a BitLicense and a traditional money transmitter license. The state also requires firms to undergo examinations making sure they are in line with requirements and comply with know-your-customer, anti-money laundering rules. Harris said:
“While I would never be foolhardy enough to say that no New Yorker will be harmed in all of this, I think it’s very fair to say that New Yorkers are better off than anybody else in the country because of the framework we have.”
FTX and its group of crypto companies filed for Chapter 11 bankruptcy in early November. Sam Bankman-Fried, the disgraced founder of FTX, was later arrested in The Bahamas after US prosecutors formally filed criminal charges against him. He was eventually extradited to the US where he was released from jail after posting a $250m bond in a New York court.
The Southern District of New York, which is investigating Bankman-Fried and the collapse of FTX and its sister trading firm Alameda, has charged SBF with eight criminal charges including wire fraud and conspiracy by misusing customer funds.
As per the latest updates, FTX has managed to recover over $5 billion in cash and liquid assets that may be used to repay creditors. However, it is still “not yet clear” how large the settlement fund for FTX creditors will be, an FTX advisor has said.