NYDFS Issues Guidance on Virtual Currency Custody Practices

The New York State Department of Financial Services ("NYDFS") issued guidance on sound custody and disclosure practices for crypto assets. NYDFS Superintendent Adrienne A. Harris emphasized "the paramount importance of equitable and beneficial interest always remaining with the customer."

Superintendent Harris said that New York law requires entities licensed to engage in virtual currency business activity to (i) hold virtual currency in a manner that protects customer assets, (ii) maintain comprehensive books and records, (iii) properly disclose the material terms and conditions related to such entities' products and services, including custody services and (iv) refrain from making any false, misleading or deceptive statements or omissions in marketing materials.

In the guidance, NYDFS recommended that firms licensed to engage in crypto activities:

  • segregate customer and firm crypto assets, separate crypto assets from non-digital assets and maintain separate sets of books and records;

  • take possession of customer assets solely for the purpose of providing custodial services, not to employ customer virtual currency for company use;

  • ensure that third-party sub-custody agreements remain compliant with applicable New York law, which requires firms to seek approval prior to entering into such agreements; and

  • clearly disclose the terms and conditions associated with its products and services, including (i) how customer and firm assets are separated, (ii) any interests the customer retains in custodied assets, (iii) how custodied virtual currency may be used while in the firm's possession and (iv) limitations on the use of custodied assets.

Tags