SEC proposal could ban investment advisers from holding assets in crypto firms
The Securities and Exchange Commission (SEC) has proposed tightening security measures for investors' assets. This was reported by the Wall Street Journal.
The commission decided to propose rules that would force investment advisers to protect all client assets they manage, including so-called alternatives such as cryptocurrencies and art, with the help of qualified custodians.
The tough custody measures under discussion followed a series of failures in the digital asset markets. Companies promoted funds as segregated and separate only to have consumers discover in the event of bankruptcy that their assets were treated as unsecured assets and part of the bankrupt company's estate.
While the SEC's proposed custody rules are intended to cover all assets, much of the discussion has focused on how they would apply to cryptocurrency.
"While some cryptocurrency trading and lending platforms may qualify to hold investors' cryptocurrency, that does not mean they are qualified custodians. The proposal would cover all crypto-assets, including those currently covered as funds and securities and those that are not funds or securities," SEC Chairman Gary Gensler said.
According to the WSJ report, investment advisers have been required for decades to hold funds and securities belonging to their clients with a qualified custodian, but some cryptocurrency platforms have said they are not subject to these requirements.
The SEC's proposal follows other recent actions by U.S. regulators related to cryptocurrency. On Feb. 13, it was reported that the federal regulator issued a Wells notice to Paxos, a New York regulated blockchain infrastructure and financial services platform, informing the cryptocurrency company that it plans to take enforcement action against it.
Cryptocurrencies are an SEC priority this year. The commission annually selects key areas that it believes pose potential risks to investors and the integrity of the U.S. capital markets. By keeping an eye on the latest trends in the industry, the SEC will be better able to identify potential dangers to both investors and markets.