Companies associated with the storage of cryptocurrencies are flagrantly violating current rules designed to protect customers. This was stated by the head SEC Gary Gensler.
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
Remarks sounded after solutions The Commission voted four to one to expand and strengthen the role of qualified custodians in relation to cryptocurrencies.
“The current model actually involves not controlling, but owning coins and mixing them with the funds of thousands, and often hundreds of thousands or even millions of other accounts,” Gensler explained.
According to the official, now the business of crypto platforms does not meet the standards of a qualified custodian, according to the rule of keeping assets established in 2009.
The SEC’s initiative may have been in response to a recent wave of industry bankruptcies, which has seen FTX, Celsius, BlockFi, and Voyager clients unable to recover their funds in full. Current SEC guidelines oblige firms to create conditions to maximize payments to creditors.
In particular, in Celsius, assets deposited by customers actually belonged to the platform. Tightening the rules may involve ending the holding of funds and transferring them to banks or other traditional financial companies.
Gensler noted that the current legislation defining custodians includes the words “bank” and “broker-dealer.”
He recalled that state-licensed trust companies and lending institutions, as well as federally licensed banks, also provided similar services in the past. The regulatory field in relation to these organizations is formed by other agencies.
When asked by reporters about the latest steps taken by the Commission, Gensler pointed to Kraken’s lack of efforts to register [сервиса стейкинга].
“Create a match [нормам]. Provide investors with time-tested information and protections.”he explained.
The head of the SEC compared digital assets to each other’s retail lending industry through marketplaces, which the Commission recognized in 2009 as based on investment contracts.
Gensler explained that fintech companies have aligned their activities with securities laws, which is not currently observed in relation to representatives of the digital asset industry.
“Some platforms are publicly saying, ‘We will never register. Some of them we end up indicting. The runway is getting shorter, he warned.
SEC commissioner Hester Pierce spoke out against tightening custody rules for industry representatives. She criticized the timing of the adoption of the proposal, questioned its feasibility and sufficient powers of the agency.
My statement on today’s custody proposal. Looking forward to comments from the public. This one affects crypto, among many other issues: https://t.co/1eWT6P45Ya
— Hester Peirce (@HesterPeirce) February 15, 2023
“This rule has broad implications for investors, financial advisors and custodians. We need a well-researched public response. The proposed sixty days don’t give […] sufficient time to analyze all aspects […]especially in light of the already loaded list of documents”, she explained.
With regard to the powers of the SEC, Pierce noted that the Commission actually seeks to indirectly regulate qualified custodians, although this is not part of its mandate.
The community also criticized the regulator’s initiative.
The Blockchain Association’s head of policy, Jack Chervinsky, saw it as a violation of the SEC’s mission by reducing investor safety and creating barriers to capital formation. In fact, a ban has been put on investments in American crypto companies, he pointed out.
Today, the SEC proposed changes to the investment adviser custody rule that seem designed to prohibit US firms from investing in US crypto companies.
This proposal would flagrantly violate the SEC’s mission by making investors *less* safe and by *discouraging* capital formation.
— Jake Chervinsky (@jchervinsky) February 15, 2023
Earlier, Gensler urged industry representatives to pay attention to the Kraken story.
Recall, on February 7, the head of the SEC said that the regulation of cryptocurrencies is included in the list of priorities of the Commission for 2023. One of the points is the study of compliance with the storage of assets.
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