Thursday, March 30, 2023

SEC chair implies crypto exchanges may be ‘qualified custodians’ as new rule is drafted


United States Securities and Exchange Commission (SEC) chair Gary Gensler spoke at a gathering of the fee’s Investor Advisory Committee on March 2 on the subject of asset custody. The committee has a proposed rule for funding advisers on safeguarding investor belongings. It was the second assertion Gensler has made on the proposed rule. The first was in mid-February when the rule was first proposed.

The present custody rule, relationship to 2009, covers “a significant amount of crypto assets” and was designed to scale back the danger of advisers embarking on Ponzi schemes. The new rule expands safeguards to all asset lessons, together with crypto belongings that aren’t funds or securities, and would improve protections offered by certified custodians, in mild of new authorities granted by Congress in 2010, Gensler said.

The proposed rule would additionally require written agreements between advisers and custodians, add necessities for international establishments serving as custodians and explicitly lengthen the safeguard guidelines to discretionary buying and selling.

Related: Galaxy acquires institutional crypto custody firm for $44M

Investment advisers, he continued, can not depend on crypto platforms to carry out custodial capabilities. He added:

“Just because a crypto trading platform claims to be a qualified custodian doesn’t mean that it is. When these platforms fail […] investors’ assets often have become property of the failed company, leaving investors in line at the bankruptcy court.”

To be a “qualified” custodian underneath the new rule, a firm would need to ensure that each one belongings are correctly segregated, undergo annual audits from public accountants and undertake different transparency measures.

SEC commissioner Hester Peirce opposed the rule. She argued in a press release that the new rule would “encourage investment advisers to back away immediately from advising their clients with respect to crypto.”