US Lawmakers Urges the SEC To Embrace 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 Change Fee final week, urging the regulator to “keep a pathway to state-regulated custodians.”

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

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

The SEC asks in its proposal if the rule ought to be narrowed to solely sure banks, comparable 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 higher 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 be certain that advisers don’t inappropriately use, lose, or abuse traders’ 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 traders’ crypto, that doesn’t imply they’re certified custodians,” Gensler mentioned.

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

The trade 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 primarily based on securities markets,” Grewal tweeted.