• The SEC has proposed a new rule that would make it more difficult for cryptocurrency firms to serve as digital asset custodians.
• Commissioner Hester Peirce has expressed concern that the proposal could lead to investors withdrawing their assets from entities with adequate safeguarding procedures.
• The new rule would require firms operating in the US to segregate all custody assets, including digital ones, and undergo annual audits from public accountants.
SEC Proposes New Crypto Custody Rule
The United States Securities and Exchange Commission (SEC) has given the go-ahead to a new crypto proposal. According to it, cryptocurrency firms will have a harder time serving as digital asset custodians in the country. As per SEC Chairman Gary Gensler’s statement, the said proposal recommends amendments to the 2009 Custody Rule that will apply to custodians of all assets, including cryptocurrencies.
Qualified Custodian Requirements
Normally, a qualified custodian is a federal or state-chartered bank or savings association, trust company, registered broker-dealer, registered futures commission merchant, or foreign financial institution, according to the SEC. In order for a firm to become a qualified custodian under this newly proposed rule they must segregate all custody assets and undergo an annual audit from public accountants.
Commissioner Hester Peirce Disagrees
Commissioner Hester Peirce however did not agree with this proposal stating: “Such sweeping statements in a rule proposal seem designed for immediate effect.. These statements encourage investment advisers to back away immediately from advising their clients with respect to crypto.“ She believes that such stringent measures will compel investors to withdraw their assets from entities that have established adequate safeguarding procedures against fraud and theft.
Platforms Without Qualified Custodians
According to SEC chairman Gary Gensler some cryptocurrency trading platforms offering custody services are not actually qualified custodians and if these platforms fail then investors’ assets often become property of the failed company leaving investors in line at bankruptcy court. He added that few crypto firms were trustworthy enough for them serve as qualified custodians due industry’s track record.
The SEC’s new crypto custody rules may make it challenging for crypto companies but Commissioner Hester Peirce is worried that this timeframe will not allow the public enough time vet all aspects of the proposal before it goes into effect which could lead investors withdrawing their funds from entities with adequate security protocols in place.