Adrienne Harris, the current superintendent of the New York Department of Financial Services (NYDFS), has announced significant updates to the regulatory guidance governing cryptocurrency custody in the wake of her upcoming departure from the role. The revisions, described as essential for enhancing consumer protection during potential insolvency scenarios, come just days before Harris’s exit on October 18, 2023.
In a notice released on Tuesday, Harris outlined that the updated guidelines build upon the framework initially established in January 2023. The NYDFS aims to clarify regulations surrounding acceptable sub-custodial arrangements, custody protocols for digital assets, and the management of customer funds. “With the growing complexity of sub-custodial relationships within the digital asset sector, this guidance aims to ensure transparency and security surrounding these practices,” stated Harris.
As the arbiter for financial services involving cryptocurrencies in New York, the NYDFS has a foundational role in overseeing operations within the state. The department’s regulations are designed to safeguard citizens engaging with cryptocurrency products and services. A key aspect of the newly revised guidance stipulates that custodians must maintain clients’ assets in separate on-chain wallets or within distinct omnibus on-chain wallets that incorporate internal ledger systems. Furthermore, custodians are expressly prohibited from using customer assets as collateral for their own financial endeavors, such as securing loans.
The updates arrived promptly after Governor Kathy Hochul announced that Harris would be resigning from her position, having held the role for nearly four years. Following her departure, Kaitlin Asrow, who serves as executive deputy superintendent, will step in as acting superintendent until a permanent successor is appointed.
Additionally, the recent weeks have seen other noteworthy announcements from New York’s political leadership. Mayor Eric Adams, who previously endorsed cryptocurrency through his campaign by accepting his initial paychecks in Bitcoin (BTC), has declared that he will not seek re-election in 2025. Adams has consistently backed pro-crypto policies, critiquing the state’s BitLicense regime and suggesting the introduction of Bitcoin-backed municipal bonds. He even organized a crypto summit at the mayor’s residence in May, showcasing his commitment to fostering a crypto-friendly environment in New York City.
The NYDFS’s regulatory updates are part of a broader initiative to adapt to the evolving financial landscape characterized by the rapid emergence of digital assets. As the state’s authoritative regulatory body since implementing the BitLicense in 2015, the NYDFS remains focused on establishing robust regulations that promote consumer safety while encouraging innovation in the cryptocurrency market.
As the industry continues to evolve, these updates will serve as a crucial reference framework for both cryptocurrency custodians and users, ensuring that rigorous standards are upheld in the management and protection of digital assets.
