The Securities and Exchange Commission (SEC) has proposed a new rule requiring investment advisors to hold all crypto assets — even non-security crypto assets like bitcoin — with a qualified custodian. Not only will the rule require enhanced bookkeeping and reporting if it goes into effect, but it will centralize large quantities of crypto assets at large companies.
It also requires custody providers to segregate client and corporate funds. This will, of course, provide additional protection for customer assets if a custodian goes bankrupt.
Friday was the deadline for public comment. In a blog post, blockchain analytics firm Elliptic estimated that most commenters proposed reworking the rule.
Investment advisors submit comments on crypto rule
A number of established crypto-focused companies and organizations have had their say on the proposed new rules. US-based exchange Coinbase wrote a letter recommending an allowance for sophisticated investors to negotiate terms of their asset custody.
The Blockchain Association disputed the SEC’s authority to regulate crypto assets that don’t qualify as securities, while the Securities Industry and Financial Markets Association (SIFMA) expressed concern that the new rule would reduce the number of qualified custodians and increase custodial fees.
It also echoed the Blockchain Association’s concern over the SEC’s potential overreach of its authority to regulate securities. SIFMA recommended modifying a rule called Staff Accounting Bulletin No. 121 (SAB 121), which requires custody providers to regard digital assets as liabilities.
Even banking giant JPMorgan Chase responded. It started by bragging about its ability to serve institutional firms that manage pensions and retail investors. However, it claimed the proposed rule in question would unnecessarily alter traditional custody practices without adding consumer protections that did not already exist under current regulations.
Specifically, JPMorgan claimed that the proposed rule would add inefficiencies and higher costs that investment firms would likely pass on to their clients.
The SEC has not effected the new rule on crypto investment advisors. It might amend it based on comments it received last Friday.