SEC to target crypto firms operating as ‘qualified custodians’ — Report

The U.S. Securities and Exchange Commission (SEC) is reportedly planning to propose new rule changes this week that could affect what services crypto firms can offer to their customers.

According to a Bloomberg report on Feb. 14. quoting “People familiar with this matter,” the securities regulator is working on a draft proposal that would make it difficult for crypto firms to hold digital assets on behalf of their client as “qualified custodians.”

This, in turn, could affect the many hedge funds, private equity firms, and pension funds that work alongside such crypto-currency firms.

According to those cited, a five-member SEC panel will vote on February 15 whether the proposal moves to the next stage.

A majority vote – 3 votes out of 5 – will be required for the rest of the SEC to formally vote on the proposal. If approved, the proposal will be amended with feedback where necessary.

While the SEC has been debating what should be a qualified custodian of cryptocurrencies since March 2019, people familiar with the matter said it’s unclear what specific changes the US financial regulator is seeking.

If completed, Bloomberg explained that some crypto firms may have to move their clients’ digital assets elsewhere.

The report adds that these financial institutions may be subject to “dash inspections” related to their custodial relationships or other implications.

SEC Chairman Issues Warning to Crypto Firms Following Kraken Staking Action

The news of the Wednesday ballot proposal appeared in a January 26 Reuters report that said the SEC would soon be contacting Wall Street investment advisors about how they offered cryptocurrency custody to their clients.

In recent days, the SEC has been busy with Paxos Trust, the issuer of Binance USD (BUSD) stablecoin, which they believe was issued as an unregistered security.

Paxos said he would be ready to “strongly litigate” if necessary.

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