New York Financial Regulator Crypto Guidance Updated

Background on NYDFS Crypto Guidance

The New York Department of Financial Services (NYDFS) has released updated guidance for cryptocurrency companies in the event of insolvency, as Superintendent Adrienne Harris announced her departure from the agency. The NYDFS, which oversees digital asset firms operating in New York, issued the revised direction on October 17, 2023, focusing on greater protections for users should a crypto firm become insolvent.

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According to the agency’s notice, the updated guidance enhances the original rules shared in January 2023. The new clarifications define what qualifies as “acceptable sub-custodians,” outline strict rules for crypto custody, and specify permissible uses of customer assets. “As we see the use of more sub-custodial relationships in the digital asset space, this guidance provides additional clarity on how those relationships should be governed,” stated Harris in the official update, reporting via Cointelegraph.

Custodian Requirements and User Asset Protection

A key element in the new New York financial regulator crypto guidance is the mandate for custodians to separate users’ digital assets. Custodians must store customer crypto in “separate onchain wallets” or in “one or more omnibus onchain wallets” with distinct internal ledger accounts. Additionally, the guidance prohibits custodians from using customer crypto for their own operations, such as securing credit, reinforcing the department’s focus on asset security and transparency.

The NYDFS has highlighted the importance of these standards as the industry increasingly utilizes sub-custodial arrangements. The changes are designed to ensure user assets are properly managed and protected in case a crypto business faces collapse or insolvency proceedings in New York.

Leadership Changes and Market Response

The update to the New York financial regulator crypto guidance was announced less than a day after New York Governor Kathy Hochul confirmed Adrienne Harris will step down as NYDFS Superintendent on October 18, 2023. Harris has led the department for nearly four years. Kaitlin Asrow, currently an executive deputy superintendent, will become the acting superintendent until a permanent replacement is appointed.

The NYDFS, founded its BitLicense program in 2015 to regulate digital asset companies in New York State. The guidance and regulatory standards are critical, given the state’s leadership in U.S. financial markets and frequent industry scrutiny.

In parallel developments, New York City Mayor Eric Adams, known for his crypto-friendly policies since his 2021 election, confirmed he will not seek reelection in 2025. Mayor Adams garnered attention for his public support for Bitcoin and advocacy for further integrating cryptocurrency into municipal finance.

What’s Next for Crypto Regulation in New York?

With leadership transitions underway, the NYDFS’s revised guidance signals continued attention to robust oversight of crypto firms and user protections. As digital asset companies expand their operations and new players seek New York’s BitLicense, the state’s regulatory framework is expected to serve as a model for crypto governance in other jurisdictions.

For ongoing updates on cryptocurrency regulation, visit our cryptocurrency news section.