SEC Wants Tougher Rules for Crypto Custody

SEC Wants Tougher Rules for Crypto Custody

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The U.S. Securities and Exchange Commission has proposed a rule change that may have far reaching implications for crypto custodians.

In a press release on Feb. 15, the SEC proposed amending a custody rule that would require investment advisors to hold cryptocurrencies with a qualified custodian, who in turn would need to abide by certain requirements.

The regulator said these protections would be designed to ensure that client assets are properly segregated to shield them in the event of a custodian’s bankruptcy or insolvency. The proposal also retains a current requirement of surprise examinations from an independent public accountant to verify these assets.

“Congress gave us authority to expand the advisers’ custody rule to apply to all assets, not just funds or securities,” said SEC Chair Gary Gensler in a statement.

“Thus, through this expanded custody rule, investors working with advisers would receive the time-tested protections that they deserve for all of their assets, including crypto assets, consistent with what Congress envisioned,” he added.

The proposal to include these changes was voted on by SEC Commissioners, with four in favor of seeing it through and one vote against, The Block reported. The lone vote against the proposal was put forth by Republican Commissioner Hester Peirce, aka “Crypto Mom,” who expressed concerns that the rule change could lead to a lack of qualified custodians in the market which may actually end up leaving crypto investors more vulnerable to theft and fraud.

According to Ram Ahluwalia, CEO of Lumida Wealth, national bank Anchorage would likely be the biggest winner from the rule change. Anchorage is the first and only fully operational OCC-chartered digital asset bank that operates as a crypto custodian.

Crypto exchange Coinbase, which also operates a custody platform, believes that it too will remain a qualified custodian in the regulator’s view.

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