US Lawmakers Urges the SEC To Embody State-Regulated Custodians in New Rule

Lawmakers urged a US regulator to not additional restrict sure monetary stakeholders in its proposed rule tightening cryptocurrency custody necessities. 

Republican Rep. Mike Flood of Nebraska and Democratic Rep. Ritchie Torres of New York despatched a letter to the Securities and Trade Fee final week, urging the regulator to “preserve a pathway to state-regulated custodians.”

The Securities and Trade Fee rule was proposed in February and would require registered funding advisers to maintain crypto with a professional custodian, which might mandate sure necessities similar to segregating buyers’ property. 

A certified custodian maintains consumer funds and could be entities like a financial institution or broker-dealer.

The SEC asks in its proposal if the rule must be narrowed to solely sure banks, similar to these topic to federal regulation. 

“Given the very small variety of digital asset custodians within the market, excluding state-regulated establishments from turning into certified custodians would result in better market focus and adversely have an effect on competitors,” Torres and Flood mentioned. 

Garnering pushback

The rule proposal has garnered some pushback because it was proposed on Feb. 15. 

On the time SEC Chair Gary Gensler mentioned the proposal “would assist make sure that advisers don’t inappropriately use, lose, or abuse buyers’ property.”

On the subject of crypto, Gensler mentioned the rule already covers crypto. 

“Although some crypto buying and selling and lending platforms could declare to custody buyers’ crypto, that doesn’t imply they’re certified custodians,” Gensler mentioned. 

Crypto change Coinbase pushed again in opposition to the proposal earlier this month, arguing that some components should be adjustments. 

The change usually agrees with the proposal, mentioned Chief Authorized Officer Paul Grewal on Twitter, whereas including that Coinbase Custody Belief Firm will stay a professional custodian if the proposal is adopted as is.

“That mentioned, like different current SEC actions, this proposal unnecessarily singles out crypto and makes inappropriate assumptions about custodial practices based mostly on securities markets,” Grewal tweeted.