US Securities and Exchange Commission (SEC) Chairman Gary Gensler has proposed amending federal custody rules to cover “all crypto assets.” “Although some cryptocurrency exchanges and lending platforms may claim to hold cryptocurrencies for investors, this does not mean that they are qualified custodians,” said the SEC chairman.
Gary Gensler suggests including Crypto in the expanded custody rules
U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler announced Wednesday that he has proposed changes to federal regulations to “expand and strengthen the role of qualified custodians.”
All asset classes, including cryptocurrencies, would be included in the expanded custodial rules under his proposal, and companies offering cryptocurrency custody services to their clients would be required to obtain registration. Gensler emphasized:
Today’s proposal, in covering all asset classes, will cover all crypto assets.
The SEC chair proceeded to highlight four major proposed changes to the current regulations. First, the proposal will help ensure “customer assets are properly segregated,” he said. Second, for the first time, qualified advisors and custodians will be required to “enter into written agreements with each other that help ensure the trustee is protected,” Gensler explained, adding that they include requiring the trustee to make annual appraisals from public accountants, submit account statements, and provide records upon request.
Gensler also explained that the proposal would also clarify that the safeguards of the guard rule apply to discretionary trading — when an advisor seeks to buy or sell an investor’s assets on behalf of an investor. Further, it would “enhance the requirements for foreign financial institutions acting either as qualified custodians or sub-custodians of a qualified custodian,” he said.
The SEC chair stressed that “although some cryptocurrency exchanges and lending platforms may claim to hold cryptocurrencies for investors, this does not mean that they are qualified custodians,” explaining:
Depending on how crypto platforms generally operate, investment advisors cannot rely on them as qualified custodians.
Gensler noted that current regulations already cover “a significant amount of crypto assets,” noting that most crypto assets “are likely to be funds or securities with crypto assets covered by the current rule.”
The SEC chair reiterated his concerns that crypto platforms are not properly segregating clients’ assets:
Instead of properly separating crypto investors, these platforms mixed those assets with their own crypto or the crypto of other investors.
“When these platforms go bankrupt—something we’ve seen repeatedly recently—investors’ assets often become property of the failing company, leaving investors queuing up in bankruptcy court,” Gensler warned. In the past year, a number of crypto companies have filed for bankruptcy, including FTX, Celsius Network, Voyager Digital, Three Arrows Capital (3AC), and Blockfi.
The Securities and Exchange Commission (SEC) has recently been active in the crypto space. Last week, the securities watchdog imposed a fee on cryptocurrency exchange Kraken for its staking program. The committee also sent a notice from Wells to Paxos regarding the Binance USD (BUSD) stablecoin, alleging that the cryptocurrency is a security and that Paxos should have registered the offering under federal securities laws. Binance CEO Changpeng Zhao (CZ) later warned of “profound implications” for the cryptocurrency industry if BUSD is judged as a collateral.
Do you think SEC Chairman Gary Gensler’s proposal will help or hurt the crypto industry? Let us know in the comments section below.
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