SEC’s Proposed Rule Could Impact Crypto Firms’ Ability to Manage Assets

U.S. Securities and Exchange Commission Proposes New Rule to Regulate Crypto Companies

The U.S. Securities and Exchange Commission (SEC) has proposed a new rule that may further restrict the operations of crypto companies as regulators continue to crack down on the space.

Proposal Aims to Protect Customer Assets

The SEC voted 4-1 in favor of a proposal that would require registered investment advisers (RIAs), such as wealth managers or hedge funds, to keep customers’ money and securities with qualified custodians like banks, broker-dealers, or trust companies when storing digital assets. This move aims to segregate customer assets appropriately, ensuring that if an adviser or custodian files for bankruptcy or becomes insolvent, it could protect users’ assets.

Crypto Companies on the Outsides

As it stands, crypto trading and lending platforms usually offer custody for users, but some don’t fit the "qualified custodian" title under the SEC’s rule because they aren’t registered with the SEC or Commodity Futures Trading Commission. The proposed rule would leave these companies on the outskirts of regulation.

Impact on Crypto Industry

The proposal has sparked mixed reactions within the crypto industry. While some experts see it as a necessary step to protect investors, others believe it could harm the number of qualified crypto custodians and deter advisers from diving into the space.

Potential Effects on Crypto Sector

If approved, the proposed rule could have both short- and long-term effects on the crypto sector. It may lead to a decrease in the number of qualified crypto custodians, making it more challenging for investors to store their assets securely. On the other hand, it could make the industry safer overall by reducing the risk of asset losses.

Counterparty Risk Remains a Concern

Even if crypto companies are forced to comply with the proposed rule, there is still a concern about counterparty risk. This refers to the possibility that a company may default on its obligations or go bankrupt, leaving investors with losses.

Comment Period Opens for Industry Feedback

The proposed rule is currently in a 60-day comment period, allowing crypto institutions to voice their concerns and provide feedback. The SEC will review these comments before making a final decision on the proposal.

SEC Commissioner Opposes Proposal

SEC Commissioner Hester Peirce opposed the proposal, criticizing it for potentially impeding the growth of the crypto sector. She expressed concern that the rule could lead to a decrease in qualified crypto custodians and discourage advisers from engaging with the industry.

Gensler’s Statement on Proposed Rule

In his statement, SEC Chairman Gary Gensler emphasized the need for clear authority over those selling financial assets to U.S. retail and other U.S. investors. He highlighted that the proposed rule aims to prevent another FTX-like explosion by giving regulators "clear authority."

Crypto Industry Reaction

The crypto industry has reacted to the proposal with a mix of concerns and opinions. Some experts believe it is essential to regulate crypto companies to protect investors, while others see it as an overreach by regulators.

Potential Impact on Crypto Ecosystem

The proposed rule could have far-reaching consequences for the crypto ecosystem. It may lead to changes in how crypto companies operate, store assets, and interact with customers. The effects of this proposal will be closely monitored by experts within the industry.

Conclusion

The U.S. Securities and Exchange Commission’s proposal to regulate crypto companies has sparked a heated debate within the industry. While some see it as a necessary step to protect investors, others believe it could harm the growth of the sector. As the comment period opens for industry feedback, the future of the crypto ecosystem remains uncertain.

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