U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler has taken aim at crypto exchanges once again by questioning their status as “qualified custodians” for investment advisory funds.
Key Takeaways
- The Securities and Exchange Commission Chair has said that crypto exchanges may not be ‘qualified custodians’.
- Gary Gensler’s remarks ahead of a meeting of the Investment Advisory Committee were in response to a recent rule change on custody.
- The statement calls into question the ability of cryptocurrency exchanges to provide services to investment advisors.
Gensler’s statement—part of prepared remarks before a virtual public meeting on Thursday—follows a February 15 vote by SEC commissioners to expand the asset custody rules to include cryptocurrencies. The vote, approved 4-1 by its commissioners, tasked investment advisors with sourcing qualified custodians to store investors’ assets, including cryptocurrencies. Advisors must maintain custody accounts for stocks, bonds, or mutual funds. Gensler said the new rules provide “important enhancements” to existing protection rules.
“Based upon how crypto trading and lending platforms generally operate, investment advisers cannot rely on them today as qualified custodians,” Gensler said. “To be clear: Just because a crypto trading platform claims to be a qualified custodian doesn’t mean that it is.”
The SEC Chair said that recent crypto bankruptcies highlighted the need for updated custody rules: “When these platforms fail—something we’ve seen time and again—investors’ assets often have become the property of the failed company, leaving investors in line at the bankruptcy court.”
The latest remarks by Gary Gensler could add further confusion for institutional investors and advisors in regard to cryptocurrencies held with exchanges. There are still questions about which exchanges make the cut as qualified custodians and which may need to comply with rules to qualify.
Some, such as Coinbase (COIN), are confident of their compliance. “Coinbase Custody Trust Company serves as a qualified custodian under the SEC’s Custody Rule, and the SEC’s recent proposal does not change that. CCTC is an institutional custodian, chartered as a limited purpose trust company under the New York State Department of Financial Services,” a Coinbase spokesperson said in a statement.