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SEC proposes to expand scope of Federal Custody regulation
Feb, 21 2023
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Gary Gensler, the chairman of the U.S. Securities and Exchange Commission (SEC), has proposed a set of changes to federal custody rules to cover “all crypto assets.” The proposed changes will ensure that companies offering crypto services are registered. Gensler also emphasized that, although some crypto trading and lending platforms claim to offer custody services, this does not make them qualified custodians.
All asset classes, including cryptocurrencies, would be covered by the proposed rule. SEC Chairman highlighted four key proposed changes to the existing regulations:
1) Ensure customer assets are properly segregated.
2) Require advisers and qualified custodians to enter into written agreements with each other to guarantee the custodian's protections.
3) Enhance the requirements for foreign financial institutions that serve as qualified custodians or sub-custodians to a qualified custodian, including segregation requirements and bankruptcy distance requirements.
4) It specifies that the custody rule’s safeguards apply to discretionary trading, so that advisers are not able to bypass it or its safeguards.
The proposed changes aim to improve investor protections and increase clarity and consistency across asset classes. Public accountants would evaluate custodians annually, provide account statements, and provide records on request under these agreements.
Gensler stressed that investment advisers cannot rely on crypto platforms as qualified custodians and pointed out that current regulations already cover a significant amount of crypto assets. He also expressed concerns that some crypto platforms are not properly segregating customer assets, but rather commingled them with their own cryptos or those of other investors.
SEC has also proposed a shortened trade settlement cycle, reducing the current two-day window, to reduce the risks posed by clearing houses in volatile periods. The federal agency will accept public comment on the proposal and hold a second vote before implementing the rules.
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Pavan A
CBW - External Analyst
INDIA
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