Gensler’s crypto cleanup gets remanded

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Programming Note: We’re off this Monday for President’s Day, but will be back in your inboxes on Tuesday.

If you ask Coinbase, SEC Chairman Gary Gensler did them a big favor.

The securities regulator proposed a new rule on Wednesday to force investment advisers to house clients’ crypto with “qualified custodians” — a category of service providers that typically refers to banks and brokerages. The new rule, which marks Gensler’s most comprehensive crypto regulatory package to date, could also boost his longtime bête noire Coinbase – which was licensed as a trust in New York in 2018.

“We commend the SEC for recognizing Coinbase Custody Trust Co. (CCTC) is a qualified custodian,” said Paul Grewal, the listed legal officer. “Following today’s SEC proposed rulemaking, we are confident that it will remain a qualified trustee.”

Gensler and SEC haven’t exactly been on the friendliest of terms with Coinbase over the past two years. Even before the agency labeled more than half a dozen tokens listed on the exchange as investment securities — a big no-no for a platform that hasn’t registered with the SEC — the company’s management hammered the agency for blocking a planned lending product. In September 2021, CEO Brian Armstrong accused the company of “some really sketchy behavior” in response to the drama.

Protecting clients’ assets has been important to regulators following the swift demise of Sam Bankman-Fried’s crypto exchange FTX as well as other popular trading platforms and brokerages whose clients lost access to their assets in bankruptcy. Gensler said Wednesday that current custody rules already apply to much of the crypto market considering that most tokens are securities. But the changes will still give advisers’ clients new guarantees, including in crypto.

— Coinbase is not alone in seeing new opportunities within the SEC’s plan. Anchorage Digital General Counsel Georgia Quinn said in a statement that the bank — “unequivocally” a qualified custodian — plans to “work with all stakeholders to ensure that any transition results in minimal disruption to the digital asset ecosystem.”

– BitGo CEO Mike Belshe, whose crypto custodian company has trust charters in New York and South Dakota, even told MM that the proposal is “generally bullish” for crypto by giving advisers a path forward on how to enter the market.

Of course, not everyone is happy. Blockchain Association CEO Kristin Smith said the SEC’s proposal would close crypto investments to US investors. (This issue has become more important as the Fed moves to split crypto from the banking sector).

The SEC Chairman made it clear that he has reservations about crypto companies’ attempts at custodial advisers’ client funds. Given the extent to which the SEC and Coinbase have been circling each other for months — Armstrong recently vowed to fight the regulator in court if it goes after the company’s crypto stake product — the question now will be whether Gensler is looking at Coinbase, or other crypto natives businesses that offer custodial services, which comply with both current and proposed rules.

Just as importanteven with its NYDFS license, Coinbase has warned in public filings that customers could still lose the assets they’ve kept on the platform in the event it goes bankrupt.

The chief told reporters after that meeting that those who are not qualified trustees will be a priority for the agency’s investigations and enforcement units.

“Make no mistake: Based on how crypto platforms generally operate, investment advisors cannot rely on them as qualified managers,” Gensler said.

SHAKE-UP CITY — Fed Deputy Chair Lael Brainard’s upcoming move to the White House has sparked a flurry of speculation about who will take her place at the central bank. The list of candidates is extremely Fed-heavy, including current Governor Lisa Cook and regional chiefs Mary Daly (San Francisco), Austin Goolsbee (Chicago) and Susan Collins (Boston). There’s a long list of Obama alums, too, included Betsey Stevenson, Karen Dynan, Christina Romer and Janice Eberly. Brian Sackuntil recently by DE Shaw, and Morgan Stanley’s global chief economist Seth Carpenter are also possible candidates. Victoria Guida has a full descent.

— Fed is not the only institution that posts a vacancy. World Bank President David Malpass stunned politicians in Washington on Wednesday when he announced he would step down before mid-year. Rumors are already swirling about who President Joe Biden will name to replace Malpass, a Trump appointee who clashed with the White House last year after indicating he had doubts about climate science.

Who’s on deck? According to Karl Mathiesen and Zack Colman, some of the names circulating include Democratic luminaries such as John Kerry, Al Gore and Michael Bloomberg. Columbia University President Minouche Shafikformer deputy national security adviser for international economics Daleep SinghDirector-General of the World Trade Organization Ngozi Okonjo-Iweala and Rockefeller Foundation President Raj Shah is also in the mix.

So, dear readers, who else is vying for these jobs? Notify Sam at [email protected] and Zachary Warmbrodt at [email protected]. You can also send us a DM on Twitter @samjsutton and @zachary

IT’S THURSDAY — Here’s what the rest of the document says: Senate Finance holds a hearing on modernizing trade laws at 10:30 a.m. … House Energy and Commerce has a subcommittee hearing on cybersecurity and the economy at 11:30 a.m. … Deputy Treasury Secretary Wally Adeyemo and SBA Administrator Isabella Casillas Guzman will be in Atlanta to discuss the economic recovery with small business owners

DEBT LIMIT – Our Jennifer Scholtes, Caitlin Emma and Eleanor Mueller: “The federal government will officially run out of cash between July and September of this year, the Congressional Budget Office predicted Wednesday — which could put the top of the debt ceiling in between. legislators’ August vacation.”

BINANCE – Binance, the world’s largest crypto exchange, expects to pay penalties to resolve ongoing civil and criminal investigations into its activity, according to The Wall Street Journal. The company is “working with regulators to figure out what are the fixes we need to go through now to make up for that,” chief strategy officer Patrick Hillmann said Wednesday.

In a text message to MM, Hillmann said Binance has no timeline for reaching a settlement with the Justice Department or civil regulators.

EXPANDING GYRE — More from Caitlin and Jennifer: “The federal deficit under President Joe Biden will reach $1.4 trillion this year, with the gap between how much money the federal government spends and how much revenue it brings in widening by another $3 trillion over the of the next decade”

— Our Brian Faler: “A multi-year boom in tax revenue that had surprised budget forecasters appears to be coming to an end, a government report released Wednesday showed … A big culprit: a big cut in capital gains taxes after last year’s Wall Street wipeout.”

REMEDIES ON THE HOT SEAT — Investment managers loosened their knives over the SEC’s proposed rule on how mutual funds address liquidity risk during periods of severe market stress. “We find little in this proposal to support,” Charles Schwab President Rick Wurster wrote in a comment letter filed late Tuesday, adding that it is “so unfriendly to investors that we question how long the mutual fund industry will be able to survive under these rules.”

The Investment Company Institute, which represents mutual funds, went so far as to question the SEC’s legal authority to promulgate the rule, citing the Supreme Court’s landmark ruling against the EPA. “While we have to see what options are in the final rule, I can tell you that all options are on the table,” Senior Director of Public Affairs Stephen Bradford told MM.

SETTLERS OF T-1 — From our Declan Harty: “The SEC finalized a plan Wednesday that would accelerate the settlement cycle for stock trades — an issue that drew national attention two years ago when a handful of major brokerages suddenly restricted trading in meme stocks.”

— WSJ’s Akane Otani: “WallStreetBets Founder Sues Reddit”

NOT SURPRISING – Our Benjamin Guggenheim and Brian Faler: “At a Senate Finance Committee hearing Wednesday, Danny Werfel — an Office of Management and Budget and IRS veteran who is no stranger to congressional scrutiny of federal agencies — emphasized that he plans to focus on providing day-to-day taxpayers a fair shake as the IRS enters a new era of cash, amid skepticism from Republicans.”

WAGES AND HOURS — Our Nick Niedzwiadek: “President Joe Biden’s pick to be the Labor Department’s top wage enforcement official hit a snag Wednesday in the Senate HELP Committee and did not advance.”

SURPRISING RESILIENCE — Bloomberg’s Molly Smith: “Retail sales rose last month by the most in nearly two years, and separate manufacturing measures also came in better than expected, according to data out Wednesday. And homebuilders are feeling more confident as mortgage rates fall back from their highs late last year.”

Stephenson Loveson is now chief information officer at CalPERS. He was most recently CTO of CalPERS, where he has worked for more than 12 years. — Daniel Lippmann

Under a cloak of secrecy in the frozen hinterland of Lapland, eurozone central bank governors will gather next week to figure out how to sell a digital upgrade of the euro project to a skeptical public. — Our Bjarke Smith-Meyer

An American delegation of about a dozen officials are headed to Europe next week to discuss the EU’s looming crypto rulebook with political bigwigs and industry representatives … delegates should include top advisers to key U.S. lawmakers such as North Carolina’s Republican Rep. Patrick McHenry and Democratic Sen. Sherrod Brown of Ohio. — Bjarke and Sam

In documents released Wednesday afternoon, the court revealed that Larry Kramer, a former dean of Stanford’s law school, and Andreas Paepcke, a Stanford computer scientist, each signed as guarantors. [to FTX founder Sam Bankman-Fried’s bail]. — CNN’s Kara Scannell and Allison Morrow