SEC suggests including crypto into federal custody rules

According to CNBC News, U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler has proposed expanding federal custody requirements to include cryptocurrencies.

The expansion will require cryptocurrency exchanges to undergo a stricter registration process to be considered custodians and segregate user assets from company holdings, CNBC reportGensler said:

Our securities laws say we must properly segregate client funds. We also shouldnt operate broker-dealers, hedge funds, or exchanges. We are doing business with our customers instead.

Federal custody regulations currently include assets such as funds and securities held by investment advisors. Current settings require investment advisors to keep securities and funds belonging to their clients in federally or state accredited banks.

The investment advisors in question include parties such as registered hedge funds and wealth managers, who must register with the SEC if they manage more than $110 million in assets.

Gensler’s proposal is to expand custody regulations and file all client assets, including crypto assets, under the same rules. Gensler acknowledged that existing legislation already includes a significant amount of crypto assets, stating:

Undoubtedly, todays rules cover a significant amount of crypto assets. Based on the way crypto platforms typically operate, investment advisers cannot rely on them as qualified custodians

Through our proposed regulations, investors will get well-established protections and naturally qualified custodians. “

He also said that most crypto assets are considered funds or securities subject to existing regulations, and that crypto exchange platforms claim control over their users’ crypto, but this means they are “qualified” custodians. He added that it does not represent

Instead of isolating investors’ crypto assets, Gensler said, “these platforms mix those assets with their own crypto assets or other investors’ crypto assets.” He went on to say that when these platforms go bankrupt, investor funds will become the property of the failed company, and investors will be “lined up in bankruptcy court.”