US Securities and Exchange Commission (SEC) Chair Gary Gensler warned that investment advisers can’t rely on crypto trading and lending platforms as qualified custodians. During a meeting of the Investor Advisory Committee, Gensler emphasized that these platforms’ typical operation is inadequate to comply with the current custody rule, which requires advisers to safeguard investors’ crypto funds and securities with qualified custodians. He noted that just because a crypto trading platform claims to be a qualified custodian doesn’t mean that it is.
Gensler pointed to a new proposed safeguarding rule the SEC introduced, which could prohibit investment advisers from keeping assets at crypto firms, as a way to enhance the protections that qualified custodians provide.
Protecting Investors’ Assets
The SEC has proposed a new safeguarding rule for protecting investors’ assets. According to Gensler, advisers are required to secure investors’ crypto funds and securities with qualified custodians in compliance with the current custody rule. This means that advisers can’t rely on crypto trading and lending platforms as qualified custodians.
Gensler explained that investors’ assets often become the property of failed companies, leaving investors in line at the bankruptcy court when these platforms fail.
SEC’s Crackdown on Crypto Firms
The SEC has recently taken a firm stance against crypto firms and key players in the industry. In February, the agency imposed a $1.4 million penalty on former NBA star Paul Pierce for promoting a cryptocurrency without disclosing that he was receiving payment for the promotion.
The SEC also charged Terraform Labs and CEO Do Kwon with defrauding investors, while crypto exchange Kraken was fined $30 million for failing to register its staking program. The SEC’s crackdown on crypto firms shows that the agency is committed to enforcing the rules and regulations of the securities market.
