SEC Launches Crypto Custody Compliance Investigation

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The Securities and Exchange Commission (SEC) is investigating registered investment advisers regarding their compliance with cryptocurrency custody.

The US agency reviewed the efforts of these advisers to comply with its regulations regarding the custody of crypto assets. While the investigation has been going on for months, it has intensified following the bankruptcy of FTX.

Consequently, SEC staff lobbied investment advisers for details of their custodial assessments of platforms, including FTX. The regulator has also targeted the due diligence efforts of equity investors in the crypto exchange.

Crypto Custody Compliance

For investment advisers to be legally allowed to hold clients’ crypto assets, they must adhere to certain security provisions. One of the criteria is that they are considered qualified custodians, although the SEC offers no such official qualification and does not list any qualified companies.

As a result, advisors managing their clients’ digital assets typically hire a third party to store them. Unfortunately for advisors looking for custodians, SEC accounting guidelines have made holding digital assets too capital-intensive for many lenders.

Earlier this week, the European Union passed legislation that could effectively have the same outcome for European lenders. The Economic Affairs Committee of the European Parliament has approved the final implementation of the Basel III agreements. From January 2025, banks must hold one euro of their own capital for every euro they hold in crypto.

SEC doubles down on enforcement

In the meantime, the SEC has focused on cryptocurrency enforcement over the past year. Since the Democrats came to power, the staff of the authorities’ crypto team has nearly doubled.

Despite meltdowns like FTX, Senator Elizabeth Warren recently praised the SEC for a strong start. Had the authority not kept crypto exchange-traded funds out of U.S. markets, it said these incidents would have had a much greater impact on the traditional financial system.

In its efforts to prevent the unhindered mainstreaming of cryptocurrencies, the SEC passively blocked several crypto-related companies from public listing last year. Circle, among other companies, accuses the SEC of deliberately failing to provide a response to the approval it would need to be made public. As a result, Circle ultimately canceled the deal in December.

Disclaimer

BeInCrypto has reached out to a company or individual involved in the story for an official statement on recent developments, but has yet to receive a response.

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