As long as crypto platforms and lenders stay unregistered as exchanges or banks, they would not qualify as custodians under the latest SEC limits proposed for registered investment advisors.
The U.S. Securities and Exchange Commission (SEC) proposed a rule that would effectively require registered investment advisors (RIA) to store digital assets with third-party custodians, rather than within the crypto industry. This would provide a greater level of security for investors, as well as peace of mind for the SEC.
The SEC has proposed a rule that would require registered investment advisors to store digital assets with third-party custodians, rather than within the crypto industry. This would provide a greater level of security for investors, as well as peace of mind for the SEC.
The SEC voted 4-1 to approve a new rule that expands regulations to require investment advisers to keep any assets they are entrusted with, including crypto, with a qualified custodian.
Crypto trading and lending platforms are not currently considered “qualified custodians” under SEC regulations. A “qualified custodian” would generally be a chartered bank or trust company, a broker-dealer registered with the SEC or a futures commission merchant registered with the CFTC.
Crypto platforms have been in the spotlight recently, with SEC Chair Gary Gensler remarking that investment advisers “cannot rely on them as qualified custodians.” The rule is not specific to crypto, but the industry was featured heavily in Gensler’s formal remarks previewing it.
The SEC has proposed that investment advisers only trust regulated financial institutions with their customers’ money, mostly leaving crypto businesses on the outside. The proposal also says that those qualified custodians would be subject to independent audits, regular disclosures and would need to segregate customer assets into accounts under the customers’ identity.
Gensler’s agency is proposing a new rule that would require crypto exchanges to hold their customers’ assets in custody. This proposal is a result of the 2010 Dodd-Frank Act, which was passed in response to the last financial collapse. The SEC has been scrutinizing crypto custodial issues recently, but this proposal is not in response to any specific incident.
The former chairman of the United States Commodity Futures Trading Commission (CFTC) has warned that cryptocurrency exchanges are putting their customers’ assets at risk by not properly segregating them. “When these platforms go bankrupt – something we’ve seen time and again recently – investors’ assets often have become property of the failed company, leaving investors in line at the bankruptcy court,” he said.