“Today New York Department of Financial Services (“DFS”) Superintendent Adrienne A. Harris released Regulatory Guidance to better protect customers in the event of an insolvency or similar proceeding. The Regulatory Guidance reiterates expectations for sound custody and disclosure practices and the paramount importance of the equitable and beneficial interest in the asset always remaining with the customer. “DFS’s virtual currency regulation has protected New Yorkers since 2015,” said Superintendent Harris. “Today’s guidance reminds DFS-regulated virtual currency companies of our expectations regarding the safekeeping of customer assets.” The guidance applies to those entities the Department has licensed or chartered to custody, or temporarily hold, store, or maintain virtual currency assets on behalf of their customers. As stewards of others’ assets, virtual currency entities that act as custodians, including without limitation, storing, holding, or maintaining custody or control of virtual currency on behalf of others, must have robust processes in place, akin to traditional financial service providers.
New York’s virtual currency regulation requires entities to, among other things, hold virtual currency in a manner that protects customer assets; maintain comprehensive books and records; properly disclose the material terms and conditions associated with their products and services, including custody services; and refrain from making any false, misleading or deceptive representations or omissions in their marketing materials. Entities operating under the BitLicense and Limited Purpose Trust Charter are held to these requirements through DFS supervision and examinations, or when need be, enforcement actions.