- US SEC looking for expansion of existing custody services to include crypto
- Earlier it took actions against crypto staking services and barred a crypto exchange from it
The tightening of regulatory grip over the burgeoning asset class industry of cryptocurrencies has recently added a new chapter. The US SEC reportedly proposed several rules that could include crypto assets under the current federal custody rules. If it goes as per the plan, crypto companies providing custody will then be able to follow compliances which were limited to funds and securities until now.
CNBC reported the recently proposed amendment in requirements of federal custody would make crypto exchanges put extra efforts in order to have regulatory approval. The Securities and Exchange Commission brought a proposal on Wednesday that received votes 4-1.
The existing federal regulations make funds and securities like assets and mandates investment advisors for holding the assets with either federal or state chartered banks.
Following the recent actions the financial regulator will come one step closer to control crypto exchanges that are already regulated though. Such regulated exchanges handle the hefty institutional custody programs which primarily serve high net worth individuals and companies involved in investors assets custody. This generally includes hedge funds or investment managers.
These increases in requirements from the companies to facilitate the custody services could directly make an impact on major entities within the crypto industry. Banks and brokers were serving as “qualified custodians,” but prominent crypto firms like Coinbase also supported it.
SEC chairperson Gary Gensler stated the newly proposed role extends to include a large “amount of crypto assets.” A significant number of cryptocurrencies include funds or crypto asset securities under the compliances of existing rules. Negating the claim of several entities claiming to be qualified custodians, he said claiming custody crypto assets of investors does not make “crypto trading and lending platforms” to act like one.
Major players within the crypto industry indulged in similar activities could have a threat after the said new rules provision. Should it continue without clarifying the norms, it will only end up strangling the nascent industry.
Expansion of custody obligations to include crypto assets and crypto firms is another stroke of the financial regulator. For the past several days, there were several instances that could prove the increasing scrutiny of the SEC over the crypto market.
Barring crypto exchange company Kraken from offering crypto staking services and regulatory actions against prominent stablecoin issuer Paxos Trust accusing it for sale of unregistered security.
Crypto companies like leading US crypto exchange Coinbase are in front of the line that might get affected by such decisions. CEO Brian Armstrong has already registered his strong condemnation against the SEC’s actions and said to defend in the US court if the company would have to face similar situations.
Armstrong earlier took to Twitter and conversely on the rumor that a financial watchdog could ban crypto staking services for retail investors. At the time, he argued that staking services as one of the crucial innovations and if managed improperly could strangle the growth of the sector within the US.
Source: https://www.thecoinrepublic.com/2023/02/17/secs-crypto-regulation-proceedings-reach-to-custody-services/