- Investment advisers must hold customer securities and money with a qualified custodian
- SEC collected no data to show digital assets linked to customers of registered advisers
In another aim at the suffering crypto industry, the US Securities and Exchange Commission (SEC) has proposed to bar investment advisers from holding customer funds in crypto, CoinDesk reported.
If it is passed into law, the regulation would expand the SEC’s existing rules, according to which investment advisers must hold customer securities and money with a “qualified custodian.” That requirement would then apply to any asset provided to an investment adviser, including crypto.
Definition of “qualified” custodian
At the moment, cryptocurrency trading platforms regularly provide custody for customers, but they're not considered appropriate custodians. A qualified custodian under SEC rules would be a registered broker-dealer, a trust company, a chartered bank, or a registered futures commission merchant.
SEC Chair Gary Gensler commented:
Though some crypto trading and lending platforms may claim to custody investors’ crypto, that does not mean they are qualified custodians. When these platforms go bankrupt – something we’ve seen time and again recently – investors’ assets often become property of the failed company, leaving investors in line at the bankruptcy court.
He added that the platforms mix different investors’ cryptocurrencies as well as their own assets with investor assets instead of segregating them properly.
Effect of proposal unclear
According to the SEC, qualified custodians would be audited independently and subjected to disclosure requirements. They will have to separate customer assets into accounts according to the client’s identity.
SEC officials have not collected any data to show the volume of digital assets linked to customers of registered investment advisers. They only confirmed that these professionals represented some assets currently held at crypto firms.
If the proposal is approved as an official regulation, it might not lead to a big change in the crypto industry’s status with the SEC, who consider its trading platforms to be generally uncompliant anyway.
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