Jan 23 (Reuters) – New York’s chief financial regulator is set to release new guidance on Monday dictating that companies separate customers’ crypto assets from their own, after alleged co-mingling of funds at collapsed crypto exchange FTX and its affiliated trading firm Alameda Research led to hefty losses for clients.
The New York State Department of Financial Services (NYDFS), which leads one of the few state agencies with a regulatory system in place for cryptocurrency companies, will also stipulate that state-regulated companies disclose to customers how they account for clients’ digital currency.
The guidance is the latest in a series of crypto-related directives NYDFS has issued in the past year, which saw a market collapse that wiped about $1.3 trillion off the value of crypto tokens in 2022. The meltdown triggered the bankruptcies of crypto firms such as FTX, Celsius Network and most recently, Genesis Global Capital, whose lending unit filed for U.S. bankruptcy protection on Thursday.
It comes as federal regulators such as the U.S. Commodity Futures Trading Commission (CFTC) are warning about the lack of consumer protections in the crypto sector. Federal agencies like the CFTC say much of what they can do is limited without congressional legislation that would give them additional authority.
“It’s timely, but truth be told, it was something we had on our policy roadmap even before FTX,” said Adrienne Harris, the superintendent of NYDFS, in an interview.
Federal prosecutors in Manhattan have accused FTX founder Sam Bankman-Fried of stealing billions of dollars in customer funds to plug losses at his hedge fund, Alameda Research. Concerns about the crossover between the two firms helped fuel a flurry of customer withdrawals in November, forcing the exchange to file for bankruptcy. Bankman-Fried has denied any criminal wrongdoing and has pleaded not guilty.