In response to the confusion caused by the FTX collapse, this particular U.S. state's financial authority is implementing stricter regulations to ensure safety.
One of the only state agencies with such a regulatory framework, the NYDFS, requires state-regulated firms to declare how they account for customers' digital money.
The chief financial regulator in the state of New York will soon issue new guidance that will require businesses to separate the cryptocurrency assets of their customers from their own. This is in response to the alleged co-mingling of funds at the now-defunct cryptocurrency exchange FTX and its affiliated financial firm Alameda Research, which led to significant losses for customers.
The New York State Department of Financial Services' (NYDFS) most recent crypto-related recommendation is one of several that it has issued over the past year. A market meltdown that occurred in 2022 around the world caused a $1.3 trillion decline in the value of cryptocurrency tokens. The collapse led to the demise of cryptocurrency firms including FTX and Celsius Network, with Genesis Global Capital being the most recent to fail. On Thursday, Genesis Global Capital's lending division sought protection from creditors under US bankruptcy law.
The NYDFS, one of the few state agencies with such a regulatory framework in place, states that state-regulated enterprises must also disclose to customers how they account for their customers' digital money. It happens at a time when federal authorities, such as the US Commodity Futures Trading Commission (CFTC), are voicing their concerns about the lack of consumer protections in the cryptocurrency market. Since Congress hasn't approved legislation giving federal agencies greater power, there are a number of limitations on the measures that organisations like the CFTC can take.
Businesses must undergo audits mandated by the state of New York to ascertain whether they are in compliance with state rules on KYC procedures, anti-money laundering measures, and capital requirements. In the majority of other states, inspections of bitcoin enterprises are unusual.
The superintendent of the NYDFS, Adrienne Harris, was cited as saying, "It's timely, but to be honest, it was something we had on our policy roadmap even before FTX."
Harris, a former senior counsellor at the U.S. Treasury Department who was approved as superintendent last year, has spent the most of her first year in the role focusing more on cryptocurrencies. She claimed that the NYDFS virtual currency division now employed close to 50 individuals and was aiming to grow.