On January 23, 2023, the New York Department of Financial Services released guidance with the stated goal of helping to protect customers of virtual currency businesses in the event of an insolvency or similar proceeding by imposing new custody and disclosure requirements on virtual currency entities that act as custodians. Specifically, the guidance focuses on four areas for virtual currency entities acting as custodians (or “VCE Custodians”):
- Segregation of and Separate Accounting for Customer Virtual Currency: A VCE Custodian is expected to (1) separately account for and segregate customer virtual currency from the corporate assets of the VCE Custodian and its affiliated entities, both on-chain and on the VCE Custodian’s internal ledger accounts; (2) avoid comingling customer virtual currency with any of the VCE Custodian’s own virtual currency or with any other non-customer virtual currency; and (3) clearly and prominently disclose the manner in which the VCE Custodian segregates and accounts for customer virtual currency.