The New York Department of Financial Services (NYDFS) recommended on Jan. 23 that custodians should segregate corporate and customer crypto assets.

Superintendent Adrienne A. Harris suggested that today’s guidance is part of the state’s broader attempts to regulate cryptocurrency. She said:

“[The Department of Financial Services’] Virtual currency regulation has protected New Yorkers since 2015. Today’s guidance reminds DFS-regulated virtual currency businesses of our expectations regarding the safekeeping of client assets.”

The main advanced recommendation in today’s guide is crypto account segregation. The NYDFS suggests that a company’s custodian separately manage corporate assets and virtual currencies deposited by clients.

Specifically, corporate and client assets must be held in separate on-chain wallets, although individual client accounts can be combined into one omnibus account. The two groups of assets must also be treated separately during accounting.

Today’s guidance also specifies that the custodian must have a limited interest in the assets: custodians must hold all assets solely for their safekeeping and must not enter into a debtor-creditor relationship. However, custodians may make subcustodial arrangements with a third party. Custodians must disclose all relevant terms and conditions.

This guidance is explicitly intended to protect customers in the event that a service becomes insolvent. It is also intended to prevent mixing of funds.

Harris told Reuters that the newly announced guidance was not specifically motivated by the FTX collapse, which saw the company mismanage user funds and deposits along with Alameda Research. Harris called that event “timely” but claimed that the NYDFS had been planning to release guidance on the matter for some time.

Harris said that the NYDFS plans to publish upcoming guidance on stablecoins, advertising, and disclosures. The agency will also focus on anti-money laundering regulations this year.

Today’s guidance applies to companies that are allowed to provide custody in New York, which is renowned for its strict regulatory stance towards cryptocurrencies. To date, only 31 companies have obtained the state’s BitLicense or its Limited Purpose Charter of Trust.

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