SEC Chairman Proposes Amendment to Federal Custody Rules to Cover ‘All Crypto Assets’ – Regulation Bitcoin News

US Securities and Exchange Commission (SEC) Chairman Gary Gensler has proposed changing federal custody rules to cover “all crypto assets”. The SEC chief said: “While some crypto trading and lending platforms may claim to deposit investors’ crypto, that does not mean they are qualified custodians.”

Gary Gensler proposes to include crypto in extended custody rules

US 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 crypto, would be included in the expanded custody rules under his proposal, and companies offering crypto custody services to their clients would be required to obtain registration. Gensler emphasized:

Today’s proposal, by covering all asset classes, will cover all crypto assets.

The SEC chairman went on to highlight four key proposed changes to the existing regulations. First, the proposal would help ensure that customer funds “are properly segregated,” he said. Second, for the first time, advisers and qualified custodians will be required to “enter into written agreements with each other that help guarantee the custodian’s protections,” Gensler explained, adding that they include requiring custodians to undergo annual evaluations by public accountants, gives account. statements, and provide records upon request.

The proposal would also “clarify that the custody rule’s safeguards apply to discretionary trading — when an adviser would seek to buy or sell an investor’s assets on behalf of an investor,” Gensler described. Furthermore, it will “increase the requirements for foreign financial institutions acting either as qualified custodians or as sub-custodians of a qualified custodian,” he detailed.

“Although some crypto trading and lending platforms may require depositing investors’ crypto, this does not mean they are qualified custodians,” the SEC chairman emphasized, elaborating:

Based on how crypto platforms generally operate, investment advisors cannot rely on them as qualified custodians.

Current regulations already cover “a significant amount of cryptoassets,” Gensler pointed out, noting that most cryptoassets “will likely be funds or cryptoasset securities covered by the current rule.”

The SEC chief reiterated concerns that crypto platforms are not properly segregating client funds:

Instead of separating investors’ crypto, these platforms have mixed these assets with their own crypto or other investors’ crypto.

“When these platforms go bankrupt — which we’ve seen time and time again recently — the investors’ assets often become the property of the failed company, leaving the investors in line at the bankruptcy court,” Gensler warned. Last year, a number of crypto firms filed for bankruptcy, including FTX, Celsius Network, Voyager Digital, Three Arrows Capital (3AC), and Blockfi.

The SEC has recently been active in the crypto space. Last week, the securities watchdog charged cryptocurrency exchange Kraken with its betting program. The commission has also sent a Wells notice to Paxos regarding stablecoin Binance USD (BUSD), alleging that the crypto is a security and that Paxos should have registered the offering under federal securities laws. Binance CEO Changpeng Zhao (CZ) then warned of “profound impacts” on the crypto industry if BUSD is ruled a security.

Do you think SEC Chairman Gary Gensler’s proposal will help or hurt the crypto industry? Let us know in the comments section below.

Kevin Helms

A student of Austrian economics, Kevin found Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open source systems, network effects and the intersection of finance and cryptography.