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DNB issues EUR 3.3 million fine against Coinbase over non-registration
De Nederlandsche Bank (DNB) has levied a fine of EUR 3.3 million against Coinbase in response to the firm’s failure to register with the Central Bank. In the Netherlands, virtual currency providers engaged in the exchange between virtual currencies and fiat currencies as well as custody wallet providers must formally register with the DNB for AML/CFT purposes. Coinbase failed to register over the time period from November 2020 until end of August 2022 all while offering its services to a significant number of Dutch customers.
NY State Department of Financial Services issues new guidance on virtual currency custody
The New York State Department of Financial Services has released new guidance in relation to virtual currency custody and disclosure practices with a view to enhancing the protection of customers in the event of an insolvency or similar proceedings. The guidance specifically targets virtual currency entities that act as custodians (“VCE Custodians”) and sets out expectations in four main aspects:
VCE Custodians must at all times maintain separate accounts for and segregate a customer’s virtual currency from its corporate assets, both on-chain and on the Custodian’s internal ledger accounts. Specifically, the guidance provides that customer virtual currency should be maintained in either (i) separate on-chain wallets and internal ledger accounts for each customer under that customer’s name or (ii) one or more omnibus on-chain wallets and internal ledger accounts that contain only virtual currency of customers held under the VCE Custodian’s name as agent or trustee for the benefit of those customers
When a customer transfers possess of an asset to a VCE Custodian for the purposes of safekeeping, the Custodian is to only take possession of the customer’s asset for the limited purpose of carrying out custody and safekeeping services and not establish a debtor-creditor relationship with the customer.
VCE Custodians have the option to enter into a sub-custody arrangement with a third party subject to prior approval by the Department that requires a detailed risk assessment of the third-party relationship and details of the .
VCE Custodians must disclose transparently to customers the general terms and conditions associated with their products, services and activities including the manner in which the VCE Custodian segregates and accounts for customer virtual currency and the customer’s retained property interest in the virtual currency.
FRB issues policy statement on state banks’ limitations to engage in novel banking activities including crypto
The Federal Reserve Board (FRB) has issued a new policy statement to further clarify its position on banks’ engagement in novel activities including those involving crypto-assets. The statement sets out that all state banks supervised by the FRB, independent of whether they benefit from deposit insurance or not, are subject to the same limitations on novel banking activities. Equally, both insured and uninsured state banks under the FRB’s supervision are subject to the same limitations on activities as those imposed on national banks which fall under the supervision of the Office of the Comptroller (OCC) of the Currency unless those activities are legally permissible by federal statute or other applicable regulations. Besides meeting requirements for legal permissibility, state banks must also demonstrate that they engage in these activities in a sound and safe manner, supported by a robust control environment, the statement further added. On the back of these principles, the FRB further clarified that it would principally prohibit state member banks from holding most crypto-assets, including bitcoin and ether, as principal. On the other hand, state banks seeking to issue dollar denominated tokens, i.e. stablecoins, would need to meet all the conditions set out by the OCC for national banks in this regard. The FRB however caveated that “issuing tokens on open, public, and/or decentralized networks, or similar systems is highly likely to be inconsistent with safe and sound banking practices”. The policy statement follows the joint statement by U.S. federal agencies in early January to address the exposure of banking organizations to the cryptoassets sector.