SEC’s New Proposal to Restrict Cryptocurrency Custody

02/14/2023 02:47 • Crypto & Markets • 133 views

According to reports, according to people familiar with the matter, the new proposal of the United States Securities and Exchange Commission (SEC) proposes to change the rules of qualified custodians, making it more difficult for hedge funds, private equity companies and pension funds to cooperate with many encryption companies.

The SEC’s new proposal proposes to change the rules of qualified custodian or make it more difficult for hedge funds to cooperate with encryption companies

Interpretation of the news:

The United States Securities and Exchange Commission (SEC) is considering a new proposal that would restrict the use of qualified custodians by hedge funds, private equity companies, and pension funds when dealing with cryptocurrency assets. According to people familiar with the matter, the proposal aims to make it more difficult for these funds to collaborate with several encryption companies.

Qualified custodians are entities that are authorized to hold securities or assets on behalf of clients. The SEC’s use of qualified custodians in the cryptocurrency market is predicated on a responsible custody regime to ensure transparency and consumer protection. Investment managers and their clients entrust their assets to qualified custodians to ensure that they are safeguarded against fraud and mishandling. The proposal to impose stricter rules for qualified custodians will fundamentally alter this equation by limiting the types of custodians crypto funds can use.

The SEC has proposed that the custody of digital assets should only be held with qualified custodians who have a license through entities that hold a particular financial industry license. This would mean that a private equity company, for example, would not be seen as qualified unless they had an existing entity with a subsidiary that had an industry license. This means that crypto funds won’t be able to use smaller custodians unless they are directly related to larger entities with industry licenses. The proposal has generated criticism from stakeholders in the crypto industry, who argue that such policy changes could hinder the development and growth of the market.

In conclusion, the SEC’s proposed policy changes reflect its regulatory concerns with the cryptocurrency market. In recent years, there have been several cases of fraud and mishandling when dealing with cryptocurrency assets. However, the proposal to restrict the use of qualified custodians under the guise of consumer protection could undermine the development of the crypto ecosystem. It is crucial that the SEC balances its goal of consumer protection with encouraging innovation in the crypto industry.

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