• Lawmakers urged the US Securities and Exchange Commission (SEC) to not limit financial stakeholders in its proposed rule tightening cryptocurrency custody requirements.
• The SEC proposed a rule that would require registered investment advisers to keep crypto with a qualified custodian, which would mandate certain requirements such as segregating investors’ assets.
• Crypto exchange Coinbase pushed back against the proposal earlier this month, arguing that some parts need to be changes
U.S Lawmakers Urges SEC To Include State-Regulated Custodians
Lawmakers have urged the U.S Securities and Exchange Commission (SEC) to not further limit certain financial stakeholders in its proposed rule tightening cryptocurrency custody requirements. Republican Rep. Mike Flood of Nebraska and Democratic Rep. Ritchie Torres of New York sent a letter to the SEC last week, urging the regulator to “maintain a pathway to state-regulated custodians”.
What is the Proposed Rule?
The SEC’s proposed rule requires registered investment advisers to keep crypto with a qualified custodian, which would mandate certain requirements such as segregating investors’ assets. A qualified custodian maintains client funds and can be entities like a bank or broker-dealer. The SEC asked if the rule should be narrowed down only certain banks, such as those subject to federal regulation.
Pushback on the Proposal
Since it was proposed on Feb 15th, this proposal has been met with pushback from various parties including crypto exchange Coinbase who argued that some parts need changing due to it singling out crypto unfairly based on securities markets assumptions.
Letter Sent by Lawmakers
In response, Torres and Flood wrote in their letter that excluding state regulated institutions from becoming qualified custodians would lead to greater market concentration and adversely affect competition.
Overall this proposal has been met with criticism from multiple fronts due its potential implications for both investors and stakeholders in the cryptocurrency sector so it remains unclear what form or version it will take when officially adopted by the SEC later this year.