On September 30, 2021, Flourish, a wholly-owned subsidiary of MassMutual, announced it would begin offering crypto services to its customers powered by Paxos Crypto Brokerage.The following blog post is by Dan Burstein, General Counsel and Chief Compliance Officer at Paxos, and is featured on Flourish News & Insights.
At Paxos, our mission is to build the foundation for a financial system where all assets, from money to commodities to securities, can be digitized and moved securely and instantly. Cryptocurrencies and digital assets represent a “brave new world” in financial services. But just because something is new, does not mean it cannot be trusted. Paxos— a highly regulated financial institution with regulated product lines—was created to address this challenge head- on.
We understand that advisors, in particular, have concerns around custody and regulation. We’re excited to partner with Flourish Digital Assets and help bring cryptocurrency buying, selling and custody services to RIAs and their clients by serving as a secure, trusted, regulated, audited, qualified custodian for Flourish Crypto. We’ve spent years building our oversight and regulatory stack and believe that we’re unique in our dedication to building trust as a critical part of offering digital assets at scale.
As the General Counsel and Chief Compliance Officer for Paxos, I take these commitments to heart. Similarly, we know that RIAs like you have a fiduciary responsibility to safeguard the assets of your clients, while working within a heavily regulated industry. Flourish Digital Assets and Paxos partnered because of this shared focus on trust, allowing you to be confident in the crypto solution you’re offering your clients.
Read on for details about our regulatory, audit, and licensing standards and practices, and feel free to share this information with clients who want to know how their assets are secured.
Paxos (then known as itBit) was the first company to secure a New York State Department of Financial Services (NYDFS) Trust Charter for Digital Assets in 2015. The Paxos Trust charter is the base layer that enables us to operate in other regulatory environments because the NYDFS maintains such high standards for its regulated entities. Some of the world’s biggest financial institutions, like Bank of New York-Mellon, State Street, and Fidelity, are all NYDFS Trust companies.
What does this mean?
With this regulatory designation, Paxos is required by the NYDFS to hold all customer assets bankruptcy-remote and separate from corporate assets, so clients know their crypto assets are always there and always in their name.
The Trust charter is the foundational component of the regulatory stack upon which Paxos has continued to build, with core products individually regulated. Our exchange, known as itBit Exchange, and the custody services that underpin Paxos Crypto Brokerage, are both regulated by the NYDFS as well. The NYDFS regularly audits operations, finances, policies, and procedures for these products in addition to auditing Paxos overall. Recognized third-parties attest to the integrity of our company and products.
Audits and Additional Designations
Audits and additional designations speak to the rigor and high standards of accountability to which we hold ourselves:
- We’ve secured comprehensive licensing so that we can offer services nationwide.
- We’re the only crypto-native company with full access to the US Federal Reserve National Settlement Service, which allows us to move money and settle transactions more efficiently.
- Third-party, independent auditors have verified that our stablecoin, exchange and custody services meet both SOC 1 Type 2 and SOC 2 Type 2 standards. We’re one of the few crypto companies to achieve this designation.
- Our affiliate, Paxos National Trust,recently secured conditional approval from the Office of the Comptroller of the Currency for a de novo National Trust Bank charter.
The Bottom Line
For Paxos, trust is not an option. It is a requirement at every level of our operations. Paxos is building a B2B enterprise business where our partners, like Flourish, are some of the most sophisticated financial and tech institutions in the world, accustomed to working with the best of the best in highly-regulated, investor-protection oriented environments. We believe our approach to regulation demonstrates just how our operations meet the highest standards in our field—and why you and your clients can in turn trust Flourish’s Paxos-powered cryptocurrency solution.