The U.S. Securities and Exchange Commission (SEC) and other industry leaders will hold a roundtable conference on Friday to debate crypto asset custody and the regulatory gap. The second round table of the four-round table series launched by the SEC crypto task force will kick off with senior SEC figures, including newly sworn Chairman Paul S. Atkins, making their remarks.
This roundtable will feature two panels: “Custody Through Broker-Dealers and Beyond” and “Investment Adviser and Investment Company Custody.” Among the confirmed participants, representatives from leading crypto and finance firms such as Fireblocks, Anchorage Digital Bank, Fidelity Digital Assets, Kraken, and BitGo, with legal and academic experts also joining the discussion.
“It is important for the SEC to grapple with custody issues, which are some of the most challenging as we seek to integrate crypto assets into our regulatory structure,” said Commissioner Hester M. Peirce, leader of the Crypto Task Force.
According to the SEC’s latest guidelines, the investment advisor is expected to hold the client’s fund and digital assets with a qualified custodian such as a bank or a deal broker. However, there are very few institutions set up to meet the crypto asset requirements. “These intermediaries face two different demands from many of their customers. The first is a demand for investment access to crypto assets. The second is a demand to ensure that customer or client crypto assets are held securely,” stated, The Review of Securities and Commodities Regulation by Scott Walker and Neel Maitra.
Delving further into the details, the review states that, unlike traditional assets, crypto is different, as “a holder’s control over a crypto asset is not proof of the absence of any other person’s control over that same crypto asset.” Many entities could have the private keys, and as such, more than one person could effectuate a transfer.
Furthermore, there is no clarity whether the crypto transactions are securities transactions and whether the rules applicable to securities should be followed when crypto is transferred.
Additionally, unlike the traditional debt or equity securities, which once acquired will generate passive income, crypto assets have to be moved, for instance, when it comes to staking, to earn passive income. This will remove the asset from custody.
Critizing the SEC stance, which puts an adviser to choose between client needs and regulatory compliance, Justin Browder, a panelist, stated that there are very few custodians who are capable of providing solutions for crypto assets.
