The United States Securities and Exchange Commission’s proposed rule to expand asset custody regulations to include more cryptocurrencies has been approved by Chair Gary Gensler. The rule seeks to reduce the risk of investors being taken advantage of by unscrupulous advisors or Ponzi schemes, regardless of whether the asset is a security or fund.
The commission’s Investor Advisory Committee expanded the rule in 2009 to provide greater protections for investors. Gensler said that the new rule will enhance the safeguards offered by traditional custodians, due to new authority given by Congress in 2010.
The proposed rule would also require advisers and custodians to enter into agreements, cover foreign institutions serving as custodians, and extend the safeguard rules to discretionary trades.
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Gensler noted that advisors cannot rely solely on crypto platforms for custody, indicating that exchanges may not meet the same standards as traditional custodians. He emphasized the need for investors to have greater levels of assurance and protection when it comes to their investments.
The rule is currently under review and will be finalized following a public comment period.
Chair of the Securities and Exchange Commission (SEC), Gary Gensler, recently suggested that cryptocurrency exchanges may not be “qualified custodians” for digital assets, as the regulator is in the process of drafting new rules. In a statement, Gensler noted that just because an exchange claims to fulfill custodial duties, it does not necessarily mean that it is compliant with the SEC’s regulations. He went on to say that when crypto trading platforms fail, investors’ assets often become the property of the failed organization, leaving investors with no real recourse.
The proposed rule, if it is approved, would require custodians to ensure that digital assets are kept in separate accounts, submit to annual audits by public accountants, and take additional steps to ensure transparency. SEC Commissioner Hester Peirce voiced her opposition to the rule, arguing that it would cause investment advisers to pull back from advising their clients when it comes to cryptocurrencies. This was Gensler’s second statement on the subject; the first one was made in mid-February when the rule was initially proposed.