Cryptocurrency companies that do not separate their digital assets from those of their clients — as cryptocurrency exchange FTX did — are in the crosshairs of New York’s top financial regulator. According to a report by Reuters on Monday (22), the New York State Department of Financial Services (NYDFS) is expected to issue new guidance this week instructing companies to separate customers’ crypto assets from their own.
In addition, the NYDFS must mandate that state-regulated companies disclose to the public how they account for customers’ cryptocurrency.
“It’s about time, but truth be told, it was something we had on our policy roadmap even before FTX,” NYDFS Administrator Adrienne Harris said in an interview.
FTX founder Sam Bankmanfried embezzled billions of dollars in client funds to cover losses at his hedge fund, Alameda Research. This alerted the authorities even more, especially in the United States.
NYDFS wants to protect cryptocurrency investors
As explained by Harris, NYDFS is focused on protecting New Yorkers from scams and scams in the crypto market. According to her, the NYDFS digital currency unit has approximately 50 employees and is in the process of hiring more. New York currently requires companies to comply with anti-money laundering and Know Your Customer (KYC) requirements.
“While I wouldn’t be reckless enough to say that no New Yorkers would get hurt in all of this, I think it’s very fair to say that New Yorkers are better off than everyone else in the country because of the structure we have,” Harris said.
Cryptocurrency fraud in New York
Despite New York’s best efforts to protect citizens, fraud still occurs. As reported by CriptoFácil, earlier this year, the New York Attorney General sued Alex Mashinsky, founder of Celsius Network, for fraud.
According to the indictment, Mashinsky defrauded investors out of billions of dollars. In addition, it hid the financial difficulties of the cryptocurrency lending company – which has now filed for bankruptcy. More than 26,000 New Yorkers were among the victims
Harris acknowledges that there is still much to be done. She said the agency is working on guidance on stablecoins, cryptocurrency advertising and disclosure, and consumer protection.
“We’ve worked hard, not only with the inspection, but also with the analysis. And in our conversations with industry, we say this is non-negotiable,” Harris said.