Another move by the US Securities and Exchange Commission (SEC) to enforce stricter regulations against crypto exchanges is already in top gear. In a recent overwhelming vote, a panel of the US financial regulator has approved a proposal to target crypto firms offering custody services.
Targeting Digital Asset Custodians
per the report, the new proposal will make it challenging for companies offering crypto asset custody services to operate in the future when implemented. As a result, the proposal would make it difficult for firms to serve as custodians of digital assets.
Meanwhile, the SEC panel is a five-member committee headed by its chairman Gary Gensler. The SEC chair is reported to have stated that the proposal has yet to be approved by the commission.
Gensler suggests an amendment to the “2009 Custody Rule,” which will apply to custodians of all asset classes, including crypto. Once other members agree, the SEC would edit the 2009 Custody Rul to include digital assets.
The SEC chair believes that several crypto trading platforms are not qualified to be called custodians despite offering custody services to clients in the United States. Based on the SEC definition of a custodian, a registered custodian is usually a bank or financial institution duly chartered by a federal or state association.
Additionally, qualified custodians should be able to show that they can meet the regulator’s requirements. Prospective custodians must also scale through other processes like annual audits and transparency measures, among others, as part of the proposed policy change.
Furthermore, off-shore and domestic firms will be mandated to ensure that all assets in their custody, both crypto and fiat, are adequately separated to ensure accurate classification. To this end, the Financial Stability Oversight Council (FSOC) proposed a new rule to sanitize the asset and custody sector and ensure that potential companies have what it takes to ensure the safety of assets under its platform.
Can The US Congress Halt SEC’s Action?
Jake Chervinsky, a crypto advocacy platform Blockchain Association policy expert, stated that only the US Congress could decide what rules should be implemented for the digital asset industry. The expert spoke amid the recent flurry of US financial regulators’ enforcement actions against the crypto space.
Chervinsky noted that regulators, especially the SEC, are bound by legal views on their activities. The Blockchain Association official believes that the SEC and the Commodity Futures Trading Commission (CFTC) must ultimately gain the expertise to oversee the broad crypto industry.
With the ideological difference between the two parties in the US Congress, Chervinsky disclosed that a compromise from the lawmakers on comprehensive crypto legislation is unlikely to happen. According to him, the SEC and CFTC have punched above their weight in the absence of legislation from Congress.
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