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January 23 (Reuters) – New York’s top financial regulator said Monday that it would ban customers’ crypto assets from accusations of money mingling between bankrupt crypto exchange FTX and its trading firm Alameda Research. It will release new guidance directing companies to segregate their virtual assets. It has resulted in large losses for the client.
The New York State Department of Financial Services (NYDFS) leads one of the few state agencies with a regulatory system for cryptocurrency companies and how state-regulated companies account for their customers’ digital currencies. It also stipulates to disclose to the customer whether the
The guidance is the latest in a series of cryptocurrency-related directives issued by the NYDFS over the past year, which saw a market collapse in 2022 that saw the value of cryptocurrency tokens drop by about $1.3 trillion. FTX, Celsius Network and most recently Genesis Global Capital’s lending arm filed for US bankruptcy protection on Thursday.
This is because federal regulators such as the US Commodity Futures Trading Commission (CFTC) have warned about the lack of consumer protection in the crypto sector. Federal agencies like the CFTC say much of what they can do is limited without Congressional legislation giving them additional powers.
NYDFS director Adrian Harris said in an interview, “It’s timely, but honestly, it was something that was on our policy roadmap even before FTX.
Federal prosecutors in Manhattan have accused FTX founder Sam Bankman-Fried of stealing billions of dollars from client funds to cover losses at his hedge fund, Alameda Research. Concerns about crossovers between the two companies led to a spike in customer withdrawals in November, forcing the exchange to file for bankruptcy. Bankman-Fried denies any criminal activity and maintains his innocence.
crypto meltdown
Acknowledged as a director last year and a former senior adviser to the U.S. Treasury Department, Harris has spent much of her first year in the role of bolstering her agency’s cryptocurrency focus. The NYDFS cryptocurrency division has about 50 employees and is hiring more.
New York State requires businesses to undergo inspections to ensure they comply with state requirements and comply with customer verification, anti-money laundering, and capital requirements. Virtual currency companies are not scrutinized in most other states.
“It wouldn’t be reckless to say New Yorkers wouldn’t be harmed by all of this,” Harris said. I think it’s very fair.
Nonetheless, last year’s cryptocurrency meltdown is still affecting residents of the state.
New York State Attorney General Letitia James sued Celsius Network founder Alex Mashinsky earlier this month to hide the declining health of the bankrupt cryptocurrency lending platform from investors. He claimed to have stolen billions of dollars in digital currency.
Mr. Mashinsky’s fraud allegations ran from 2018 until June 2022, when his deposits were frozen, and victims included more than 26,000 New Yorkers, James said. Mashinsky’s attorneys deny the allegations. NYDFS declined to comment on the Celsius lawsuit.
Additional guidance
Cryptocurrency exchange Gemini, which has a limited-purpose trust charter in New York and is licensed to serve New York residents, has partnered with bankrupt Genesis Global Capital to launch a cryptocurrency yield product. , and locked customers from accessing those accounts when Genesis suspended them. Withdrawn in November. Gemini says he owes $900 million from Genesis.
Harris acknowledged that her office could still do more, and said her agency is working on additional guidance on stablecoins, cryptocurrency advertising and disclosure, and consumer protection.
Compliance with anti-money laundering regulations for cryptocurrency companies is also a “huge issue,” and she expects her office to continue to focus on the issue in 2023.
Earlier this month, the NYDFS announced a $100 million settlement with Coinbase Inc (COIN.O) over its compliance with rules to prevent money laundering. It has fined Robinhood Markets (HOOD.O) cryptocurrency division $30 million for violating anti-money laundering, cybersecurity and consumer protection rules.
“We’ve worked really hard, not just through enforcement, but through inspections and in conversations with the industry, to say this is non-negotiable,” Harris said.
Reported by Hannah Lang of Washington. Edited by Ira Iosebashvili, Diane Craft, Emelia Sithole-Matarise
Our Standards: Thomson Reuters Trust Principles.
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