NY Regulator’s Crypto Swan Song: New Guidance Released

As Adrienne Harris prepares to leave her position as superintendent of the New York Department of Financial Services (NYDFS), she has revealed revisions to the department’s protocol for situations where cryptocurrency firms face insolvency.

According to a statement released on Tuesday, Harris indicated that the NYDFS has refined guidelines initially presented in January of the previous year. These updates aim to reinforce protections for users “in the event of an insolvency or similar proceeding.” The updated guidance clarifies acceptable standards for “sub-custodians,” specifies safeguards for crypto custody practices, and defines “permissible uses of customer assets.”

“With the rising adoption of sub-custodial arrangements within the digital asset sphere, this updated guidance offers further clarity on managing these relationships,” Harris stated.

The announcement of these modifications coincides with New York Governor Kathy Hochul’s disclosure that Superintendent Harris will be resigning from her post on October 18th, after approximately four years of service. Kaitlin Asrow, currently an executive deputy superintendent, will assume the role of acting superintendent, pending the appointment of a permanent replacement.

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Guidance for crypto users

The revisions made by the NYDFS to its 2023 guidelines mandate that custodians store users’ cryptocurrency holdings in either “separate onchain wallets” or “one or more omnibus onchain wallets,” maintaining detailed internal ledger accounts for each user.

The updated rules also clarify that custodians are prohibited from utilizing customer crypto assets for their own purposes, such as securing credit lines.

As the primary financial regulatory body for New York, the NYDFS oversees crypto businesses operating within the state or offering services to its residents. The department introduced the BitLicense program in 2015, which is mandatory for all digital asset businesses functioning in New York.