SEC Proposes Tougher Crypto Custody Rules: Get Ready for Change

• The United States Securities Exchange Commission (SEC) has proposed tougher rules to regulate the custodians of digital assets including cryptocurrencies.
• The proposal, if approved, would require crypto trading platforms to adhere to a set of transparency measures such as annual audits from public accountants and proper segregation of custodied assets.
• SEC Chairman Gary Gensler has warned that some crypto trading and lending platforms may be claiming to custody investors‘ crypto without properly segregating them, which can lead to bankruptcy when they go out of business.

SEC Proposes Tougher Rules for Crypto Custody

The Securities and Exchange Commission (SEC) has voted 4-1 in favor of a proposal that could make it more difficult for cryptocurrency firms to serve as digital asset custodians in the future. The proposed amendments seek to expand the scope of the 2009 Custody Rule to apply to all asset classes, including cryptocurrencies.

Qualified Custodians Under New Rules

Under the newly proposed rules, U.S. and offshore firms would need to ensure that all custodied assets – including cryptocurrencies – are properly segregated while these custodians will be required to jump through additional hoops such as annual audits from public accountants, among other transparency measures. Qualified custodians generally include federal or state-chartered banks or savings association, trust companies, registered broker-dealers, registered futures commission merchants or foreign financial institutions.

Warning Against Trading Platforms

SEC Chairman Gary Gensler has warned that some crypto trading and lending platforms may be claiming to custody investors‘ crypto without properly segregating them, which can lead to bankruptcy when they go out of business. He stressed that customers should only use qualified custodians for their investments in order „to get the time-tested protections—and qualified custodians—they deserve.“

Public Comment Period

Before officially approving the new proposals set forth by Gensler-led SEC , there will be a 45-day public comment period where individuals and organizations can share their opinions on the new rules with regards to digital asset custody requirements before they are officially implemented into law.

Final Thoughts

The SEC’s move is seen as a positive step forward in regulating cryptocurrency exchanges and protecting investors from potential fraud or mismanagement within these platforms. It is expected that if approved after going through its 45 days public comment period , these new regulations will further legitimize cryptocurrency exchanges by bringing them up on par with traditional finance industry standards .