SEC Moves to Scrutinize Crypto Firms Offering Custodial Services: Report


The United States Securities and Exchange Commission (SEC) is proposing some rule changes that will make it difficult for crypto firms to be “qualified custodians,” according to a February 14 Bloomberg report that cited people familiar with the matter.

Crypto custodians store digital assets on behalf of investors. They are one of the important parts of the mass institutional adoption of crypto assets such as (BTC) and Ether (ETH). 

SEC Targets Crypto Custodians

The SEC, which views qualified custodians as entities that maintain clients’ funds and securities in a certain manner, has been struggling with the question of who can be a qualified crypto asset custodian and is requesting feedback from the public on the matter.

While it is unclear what specific changes the agency is seeking if finalized, the move is expected to affect hedge funds, private equity firms and pension funds already working with crypto entities, offering them custodial services.

The report added that the proposal could see money managers that have forayed into crypto move their customers’ crypto holdings elsewhere. They could also face “surprise audits” related to their custodial relationships or other ramifications.

Subject to Approval

Per the report, the majority of the five-member SEC would have to approve the proposal before it could be put out for public comment. If the majority votes in favor and public feedback is obtained, the regulator will vote again to finalize the rule.

The proposal is part of the SEC’s clampdown on the crypto industry as it aims to mitigate crypto’s risks to the broader financial system. The SEC’s scrutiny of crypto has intensified following the implosion of several major players in the industry last year.

Recently, leading cryptocurrency exchange Kraken reached a $30 million settlement with SEC, forcing it to stop offering crypto staking services to its clients. According to reports, the securities regulator is also planning to sue New York-based crypto firm Paxos over the listing and issuance of Binance USD (BUSD), the stablecoin of crypto exchange Binance. 

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