• The US Securities and Exchange Commission (SEC) plans to propose new regulations this week that could affect the services crypto firms offer their clients.
• A five-member SEC panel will vote on the proposal on Feb. 15, and if it passes, the proposal will be voted on officially by the rest of the SEC.
• This is in line with the SEC’s efforts to curtail risks crypto could pose to the broader financial system, following some spectacular failures of crypto firms in 2022.
SEC Proposal for Crypto Firms as Qualified Custodians
The US Securities and Exchange Commission (SEC) plans to propose new regulations this week that could affect the services crypto firms offer their clients. A five-member SEC panel will vote on the proposal on Feb. 15, and if it passes, the proposal will be voted on officially by the rest of the SEC before being implemented.
Consequences of Regulation
If implemented, entities such as hedge funds, private equity firms, and pension funds would have a more challenging time working with crypto firms since they are required to use qualified custodians to hold their clients‘ assets. If approved, these entities would need to move their clients‘ holdings elsewhere.
In 2020, an SEC staff said that they were grappling with determining who could be a qualified custodian of digital assets and requested feedback from the public. This proposed rule change aligns with their efforts to curb any risks cryptocurrency may pose to other sectors in finance after some notable failures such as those experienced by FTX exchange and Voyager Digital broker in 2022.
After approval from voting members at Wednesday’s meeting, a majority vote of three out of five is required for implementation which would then put out for public participation before another final voting round can take place for full implementation.
This proposed regulation seeks to bring more control over how digital assets are held while also addressing any potential risks posed by cryptocurrency towards traditional financial systems. It remains unclear what specific changes may come but it appears progress is being made towards regulating digital asset handling within traditional finance industries with many awaiting its outcome soon after Wednesday’s meeting concludes