Crypto Exchange Coinbase Receives NYDFS Approval For Custody Service

News, Regulation | October 24, 2018 By:

The New York State Department of Financial Services (NYDFS) has approved the application of crypto exchange Coinbase to form a qualified custodian firm for cryptocurrencies.

The NYDFS’ custody rule is designed to provide additional safeguards for investors against the possibility of theft or misappropriation. Qualified custodians are required to meet certain security thresholds, file financial audits and monthly disclosures, and ensure full compliance with existing know your customer (KYC) and anti money laundering (AML) rules.

On Tuesday, Conbase received approval from NYDFS to create the Coinbase Custody Trust Company LLC, which will operate as a limited purpose trust company. Coinbase Custody Trust is legally a separate company from Coinbase and will be held to the same compliance, security and capital requirements as traditional fiduciary custodial businesses like the DTC. The NYDFS also authorized Coinbase Custody Trust to offer narrow services to operate as a custodian for cryptocurrencies, including bitcoin, Bitcoin Cash, ethereum, Ether Classic, XRP and Litecoin.

Sam McIngvale, Product Lead at Coinbase Custody, said that operating under a New York State Trust Company is an important piece of regulatory clarity that will allow them to compliantly store more assets and add new features like staking.

“Customers can trust that the company has met the rigorous banking standards of NYDFS regarding capitalization, anti-money laundering procedures, confidentiality, security and storage,” McIngvale said.

To date, the NYDFS has approved eleven charters or licenses for crypto companies. In January 2017, the regulator issued a virtual currency and money transmitter license to Coinbase to offer services for buying, selling, sending, receiving, and storing cryptocurrencies.

“New York continues to be a leader in creating, fostering, and responsibly regulating a financial services marketplace that promotes innovation, safeguards the industry and protects consumers through strong supervision,” said NYDFS Superintendent Maria T. Vullo. “Today’s approval further demonstrates that the state regulatory system is the best arena in which to responsibly supervise the growing fintech industry within a sound and compliant framework.”

Asiff Hirji, President and COO of Coinbase, said that the New York State Limited Purpose Trust charter builds on their unparalleled success as a crypto custodian while holding the company to the same exacting fiduciary standards and oversight of other, mature financial institutions operating in New York.

“Since 2014, the New York Department of Financial Services has proven itself to be a strong advocate in its support for the responsible growth of the cryptocurrency industry,” Hirji said. “We applaud the leadership Superintendent Vullo has shown to guide the responsible growth of the cryptocurrency ecosystem and look forward to working with their offices in the future.”