NYDFS (New York Department of Financial Service) has restated custody and disclosure requirements for BitLicense holders and limited purpose trust charter. 

The New York’s department of financial services has put up the most onerous operating requirements for digital asset firms on notice. The new revisions require the firms to comply with KYC (Know Your Customer), AML (Anti Money Laundering) and Capital standards. 

Also, due to high-profile meltdowns and crypto lender bankruptcies, New York’s department appears to be bearing down on the industry. Firms having licences and charters that can operate in the state include Coinbase, Circle Internet Financial, Fidelity, NYDIG, Paxos, PayPal, Robinhood, and SoFi Digital Assets. 

Another exchange, Gemini, remains to be seen after the securities and exchange commission’s complaint.

NYDFS in the last 12 months, levied its first-ever crypto-related enforcement actions against Robinhood, which paid a fine of $30 million, and the latest is a Coinbase settlement of $100 million. 

Meanwhile, the New York AG (Attorney General) Letitia James sued Alex Mashinsky, earlier this month. The founder of Celsius Network was alleged of defrauding investors out of billions of dollars in digital asset funds. 

“Today’s guidance reminds DFS-regulated virtual currency companies of our expectations regarding the safekeeping of customer assets,” superintendent Adrienne Harris said in a press statement.

Among the reiterated rules, here are some critical highlights for Bitlicence holders:

  1. Preserving customer funds segregated from corporate assets.
  2. Ensuring customer funds usage by restricting use for making a debtor-creditor relationship.
  3. Mentioning clear and transparent terms of use for custodial agreement.

NYDFS could end up taking a bigger part in managing restructuring or liquidation proceedings, such as:

  1. The banking law grants Harris the authority to take possession of the banking firm’s business and property under the condition that it was insolvent. 
  2. Trust firms are considered banking firms under the law.

The New York Department of Financial Services is also working on the guidance of stablecoins, consumer protection and advertising disclosure requirements.

Suggested Read:

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US Regulators to Sharpen AML Expectations For Crypto Sector

Coinbase Agrees to $100Million Settlement with NYDFS for AML Violations

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