Industry representatives have voiced their disagreement with the US Securities and Exchange Commission’s proposal to broaden custody regulations for cryptocurrencies.
- Industry stakeholders have objected to SEC’s proposal to strengthen regulations governing crypto custody.
- Among other transparency requirements, the law would compel businesses to properly segregate assets and undergo annual audits by public accountants.
Opposition to SEC’s Proposed Crypto Custody Rules
The SEC has recommended tightening regulations surrounding crypto-custody and extending custody standards. Two industry supporters have, however, voiced their objections to the initiative. The Blockchain Association sent a letter to the SEC on May 8 protesting the agency’s proposal to change the custody rule. Three days before, the Web3 venture capital firm Andreessen Horowitz (a16z) also wrote the SEC. Both parties have questioned the validity and significance of the proposition.
Blockchain Association’s Argument Against SEC’s Proposal
On May 8, the Blockchain Association stated that the rule would “dramatically curtail investment in digital assets” and that it is “illegal” in its current form. Additionally, it offered more than a dozen other defenses against the SEC, including that the SEC had exceeded its power, that advisers couldn’t conduct business with cryptocurrency exchanges, and that investors’ funds would be put in greater danger.
a16z’s Argument Against SEC’s Proposal
On the same day the letter was sent, a16z general counsel Miles Jennings tweeted that the company “did not mince words” and labeled the SEC proposal a “misguided and transparent attempt to wage war on crypto.” The company made similar reasons in their letter. Still, it concentrated more on how registered investment advisers would be affected, specifically that advisors wouldn’t be allowed to use cryptocurrency and that the laws would go against the duty of care that the SEC expects of such organizations. The ban on advisors trading cryptocurrency on centralized exchanges was described as “illegal, unworkable, and dangerous.”
SEC’s Proposed Crypto Custody Rules
The plan, which has yet to receive SEC approval, would impose stricter regulations on financial advisers in the custody of assets, including cryptocurrency. Businesses would have to separate their assets correctly, and among a host of other transparency requirements, custodians would need to submit to annual audits by public accountants. With this rule, SEC Chair Gary Gensler has mainly targeted cryptocurrency exchanges, claiming that some platforms offering custody services are not legitimate “qualified custodians.”
Pushback Against the Proposal
Industry representatives have criticized the concept and opposed it. For instance, Commissioner Hester Pierce questioned the “workability and breadth” of the rule and how it appeared to target cryptocurrencies and associated companies. The SEC’s power to administer the proposed regulation and its possible effects on the sector were other issues in the letters from the Blockchain Association and a16z.
Conclusion
Representatives of the sector have voiced serious concerns about the legality and potential effects of the SEC’s proposed rule on crypto custody. Two of these business representatives, the Blockchain Association and a16z, wrote letters to the SEC protesting the proposed rule. Although the SEC has not yet finalized the regulation, the potential effects it may have on registered investment advisers and cryptocurrency trading platforms that offer custodial services are of great concern to the sector.
