The warning was released on Monday by the New York State Department of Financial Services (NYDFS) as part of an update to its regulations designed to protect clients from the failure of digital asset businesses.
New Yorkers have been safeguarded by the DFS’s virtual currency legislation since 2015, according to NYDFS Superintendent Adrienne Harris. “Today’s warning serves as a reminder of our goals for consumer asset protection to DFS-regulated virtual currency firms.”
The NYDFS expects a business to take possession of a client’s asset “only for the restricted purpose of carrying out custody and safekeeping services and that it will not thereby establish a debtor-creditor relationship with the customer,” according to the modified advice.
Customers must be informed of all terms and conditions associated with a company’s goods and services, including how the company separates and accounts for cryptocurrency holdings.
The statement comes as the cryptocurrency sector struggles to recover from a significant drop that was partially brought on by the blending of user assets.
The role of consumer protection is central to the issues facing the crypto industry, as I discussed with Ron Kruszeweski, CEO of Stifel, in late last year. These challenges are highlighted by the failure of FTX.
