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Crypto News: During a meeting of the Investor Advisory Committee, SEC Chair Gary Gensler announced that a proposed rule would direct investment advisers to look for qualified custodians for the storage of assets, including cryptocurrency. Additionally, he stated that crypto exchanges should not be deemed safe in light of the aforementioned guidelines.
Exchanges Are Not Qualified Custodians
This is the second time that the U.S. Securities and Exchange Commission (SEC) Chief Gary Gensler has expressed his skepticism regarding the possibility that cryptocurrency exchanges serving as secure and certified custodians for investment advisers. Gensler had previously made a similar comment along these lines when he penalized Kraken’s crypto staking services, while Coinbase boasted about its robust custodian service.
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The SEC chief made reference to previous bankruptcies in the crypto industry, emphasizing that the customers’ assets that were held on insolvent platforms are now a part of the estate rather than being returned directly to the customers. While speaking on the subject of qualified custodians in the crypto market, Gensler was quoted as saying:
To be clear, just because a crypto trading platform claims to be a qualified custodian doesn’t mean that it is.
Furthermore, based on how crypto lending and trading platforms generally operate, “investment advisers cannot rely on them today as qualified custodians”, Gensler added. Citing reference to the custody rule adopted in 2009, the SEC supremo stated that the rule also covers a significant amount of crypto assets and that advisers are required to protect investors’ crypto funds and securities with qualified custodians.
SEC’s Growing Crypto Crackdown
Traditional examples of firms that can function as qualified custodians include banking institutions, trust corporations, and securities broker-dealers. In spite of this, throughout the course of the past few years, trading platforms such as Coinbase have begun to offer the service, due to the intricacies involved in preventing assets such as Bitcoin from being stolen or hacked. At the time of writing, the price of Bitcoin (BTC) was trading at around $23,370 with a market cap of $451 billion.
Gensler closed his speech on cryptocurrencies by stating that Congress had endowed the SEC with new powers to expand the custody rule as a consequence of the financial crisis and Bernie Madoff’s frauds. The extended custody regulation would ensure that investment advisers do not misuse, lose, or act irresponsibly with their client’s money.
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