In Wake of FTX, New York Reminds Crypto Firms to Segregate Customer Funds

The crypto exchange's bankruptcy proceedings revealed poor segregation of customer funds, so the New York regulator is reminding service providers to keep clean records.

AccessTimeIconJan 23, 2023 at 3:27 p.m. UTC
Updated Jan 23, 2023 at 5:08 p.m. UTC

New York's top financial regulator on Monday published guidance for crypto companies to improve customer protection in the event of insolvency or a similar proceeding – including a requirement for firms to keep customer funds separate.

The New York Department of Financial Services (NYDFS) reiterated its requirements for record-keeping as a number of crypto entities, including Sam Bankman-Fried's FTX exchange, is undergoing bankruptcy proceedings in the U.S.

Former FTX management is alleged to have misappropriated customer funds, including to prop up the exchange's sister trading firm Alameda Research ahead of its collapse. FTX's new CEO, John J. Ray III, has also lambasted the company's previous management for its poor record-keeping.

"As stewards of others’ assets, virtual currency entities ('VCE') that act as custodians ('VCE Custodians') play an important role in the financial system and, therefore, a comprehensive and safe regulatory framework is vital to protecting customers and preserving trust," the NYDFS said.

The guidance is meant to offer "greater clarity" regarding standards and practices to help ensure a "high level of customer protection with respect to asset custody" under the NYDFS' BitLicense regime, set up in 2015.

Companies regulated under the BitLicense regime are required to "custody customer virtual currency properly and maintain appropriate books and records," including segregating and separately accounting for customer funds. The regulator also requires companies to maintain clear records and "disclose to each customer in writing the general terms and conditions associated with its products, services and activities."


Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

Sandali Handagama

Sandali Handagama is CoinDesk's deputy managing editor for policy and regulations, EMEA. She does not own any crypto.