SEC crypto proposal could prevent investment advisers from owning shares in companies

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Matt Sigel, Head of Digital Assets Research at Vaneck, discusses the SEC’s crackdown on crypto regulations and the industry’s impact on the world.

The Securities and Exchange Commission (SEC) on Wednesday proposed a rule that would expand regulations requiring investment advisers to secure client assets with qualified custodians to include cryptocurrency assets, which are not covered by regulatory definitions. current.

The proposal, which was made official by a 4-to-1 vote, addresses regulators’ concerns that crypto firms’ custodial practices may not sufficiently secure investors’ assets if a firm goes bankrupt. This follows the collapse of crypto exchange FTX, whose founder Sam Bankman-Fried allegedly mismanaged billions of dollars in investor funds.

“I support this proposal because, using the significant powers that Congress granted us after the financial crisis, it would help ensure that advisers do not inappropriately use, lose or misuse investor assets. In particular, Congress has given us the power to expand the Advisor Custody Rule to apply to all assets, not just funds or securities.In addition, investors would benefit from proposed changes to enhance protections. offered by qualified dealers.

– SEC Chairman Gary Gensler

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The seal of the U.S. Securities and Exchange Commission hangs on the wall of SEC headquarters (Reuters/Jonathan Ernst/Reuters Photos)

Gensler added, “So with this expanded custody rule, investors working with advisors would receive the proven protections they deserve for all of their assets, including crypto assets, consistent with what Congress intended.”

Some crypto platforms like Coinbase have argued that cryptocurrencies are digital tokens that do not meet the traditional definition of funds or securities and therefore fall outside the regulatory jurisdiction of the SEC.

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Cryptocurrency mixing platform Tornado Cash has been hit with US sanctions over money laundering allegations. Cryptocurrency Illistration photo taken January 24, 2022. (REUTERS/Dado Ruvic/Illustration/Reuters)

“Coinbase Custody Trust Co. is a qualified custodian today and will be a qualified custodian tomorrow,” Coinbase Chief Legal Officer Paul Grewal tweeted. He added that the SEC’s proposal “does not change that fact” and noted, “This is not a final action – it is only the first step in a long process that requires the SEC to collect information. opinion of the public before considering next steps.”

The SEC said in its proposed rule that the “market for crypto asset custodial services continues to grow” but is “pretty thin.”

Ticker Security Last Change Change %COIN COINBASE GLOBAL INC. 69.34 +10.31 +17.47%

Under the proposed rule, the agency noted here is a national bank regulated by the Office of the Comptroller of the Currency (OCC) offering custody services for crypto. There are also four OCC-regulated trusts, 20 state-chartered trusts and other limited-purpose banking entities, and at least one future commission merchant offering custody services for crypto assets.

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Representation of Bitcoin is seen with binary code displayed on a laptop screen in this illustration photo taken in Krakow, Poland, August 17, 2021. (Jakub Porzycki/NurPhoto via Getty Images/Getty Images)

The SEC’s proposed rule is not limited to crypto and would also apply to certain physical assets held on behalf of investors.

The agency noted that “physical assets, including works of art, real estate, precious metals, or physical commodities (e.g., wheat or lumber), would fall within the scope of application of the proposed rule”.

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Following publication of the SEC’s proposed rule in the Federal Register, a public comment period will be open for a period of 60 days, after which the agency will consider comments and possibly incorporate the comments into the final rule.

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