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- On Wednesday, the Securities and Exchange Commission (SEC) proposed significant amendments to federal regulations, which were passed by a 4-1 vote.
- SEC officials emphasized that the proposed amendments did not address the issue of which cryptocurrencies the SEC considers securities.
On Wednesday, the Securities and Exchange Commission (SEC) proposed significant changes to federal regulations, which were passed by a 4-1 vote. The bill aims to extend custody rules to cover cryptocurrencies and oblige companies to register or maintain registration to be eligible to hold these assets for customers.
To clarify, the proposal would require firms that hold digital assets for customers to register with the US watchdog as broker-dealers, and fall in line with custody requirements to ensure the safety of customer assets.
Furthermore, the rules would also put in place a minimum financial requirement and require firms to maintain certain records and provide customers with certain disclosures.
If adopted, this would represent a significant shift in how the SEC regulates the custody of digital assets, which are not currently covered by existing rules.
We @SECGov just proposed to expand & enhance the role of qualified custodians when registered investment advisers custody assets on behalf of investors.
Thru our rule, investors would get the time-tested protections—and qualified custodians—they deserve.
What does this mean? ⬇️ pic.twitter.com/RerUGnpArI
— Gary Gensler (@GaryGensler) February 15, 2023
According to SEC officials, the amendments would not modify the criteria to be a qualified custodian, and state-chartered trust companies like Coinbase or Gemini could still serve as qualified custodians. The officials highlighted that the proposal did not reach a conclusion on the matter.
To clarify, the officials emphasized that the proposed amendments did not address the issue of which cryptocurrencies the SEC considers securities.
Additionally, the regulations would require a written agreement from both the custodians and advisors, broaden the requirements for future examinations, and strengthen the rules regarding recordkeeping.
According to material released by the agency on Wednesday:
The proposed changes by the SEC are also intended to ensure client assets are properly segregated and held in accounts designed to protect the assets in the event of a qualified custodian bankruptcy or other insolvency.
The SEC began cracking down on other cryptocurrency institutions such as Coinbase, which is the only cryptocurrency exchange in the US that is solely publicly traded.
In another development, the SEC settled with Kraken, a cryptocurrency exchange, over its staking program, alleging that it violated regulations as an unregistered sale and offering of securities.
Related: SEC RAMPS UP ITS ENFORCEMENT ACTIONS AND LAUNCHES PROBE INTO KRAKEN
Coinbase claims to be a qualified crypto custodian, with thousands of institutional clients using its Prime platform to secure their funds.
When the issue of potential action against staking was raised, Coinbase’s CEO Brian Armstrong commented that it would be a negative direction for consumers.
According to its financial report for the three months ending September 30, 2022, Coinbase earned $19.8 million from institutional transaction revenue and $14.5 million from custodial fee revenue.
This institutional revenue accounted for approximately 5.8% of Coinbase’s total revenue of $590.3 million in that period. However, this percentage does not take into account any revenue from blockchain rewards or interest income generated by institutional custody clients.
