Crypto-world has something new popping in every day but this new set of rules proposed by the SEC has caused heads to turn as new requirements are set in motion. As the crypto industry continues to be under criticism from regulators, this action might further curtail crypto platforms including Coinbase.
The fresh suggestions put out by the Gensler-led SEC intend the expansion of standards rules set earlier on by the 2009 Custody Regulations. Let’s dig right into the details!
Proposed SEC Crypto-Restrictive Policy
Drawing new speculations, The United States Securities and Exchange Commission (SEC) panel that evaluated a proposal for cryptocurrency firms to operate as digital asset managers in the future was 4-1 in favor of the proposal, making it more challenging.
On February 15th, 2023, keeping the past bankruptcy situations in the crypto market under consideration, the U.S., SEC Chairman Gary Gensler announced in a statement that the proposal, suggests improvements to the Custody Rule of 2009, that will extend to controllers of assets including cryptocurrencies and he elaborated in his statement,
“Make no mistake: Today’s rule, the 2009 rule, covers a significant amount of crypto assets. Further, though some crypto trading and lending platforms may claim custody of investors’ crypto, that does not mean they are qualified custodians.”
Upscale Crypto Custodians Under Scrutiny
To date, this is the most direct action taken by the SEC to regulate decentralized exchanges and licensed cryptocurrency exchanges with significant asset custody programs. These are known to generally cater to upscale people and businesses that house investor assets, such as hedge fund managers and pension investment managers.
Before a company can keep any customer asset, including cryptocurrencies, it must first comply with the requirements outlined in the new legislation. These requirements include registration as a financial advisor or futures commissions merchant, or as a specific form of trust or international financial institution.
Traditionally, qualified custodians have included financial organizations including banks, private corporations, and broker-dealers. Despite this, in the recent few years, trading platforms like Coinbase have started to offer the service due to the intricacies required to safeguard assets and cryptocurrencies like bitcoin from theft or hacking.
Coinbase Facing a Crunch Amidst U.S. SEC Proposal
The latest target of this new rule implementation seems to be Coinabase. Coinbase, the company, asserts that it is a certified crypto custodian since it handles several institutional clients through its Premium platform. As of September 30th, 2022, the company’s custodial services had generated $68.4 million in revenue, down 21% from the same period in 2021.
To counteract all these regulative measures, Coinbase, according to the aforementioned sources, already has a system that is comparable in place as a defense mechanism against this. The cryptocurrency exchange stated in its most recent quarterly report that it protects its customers’ crypto assets.
It keeps them distant from bankruptcy situations by applying the remote option, and from any potential general creditors. However, because of being unique sets of assets, the exchange also highlighted that it was unclear how the judiciary would approach them.
A source said they didn’t think the association would be endangered because Coinbase Custody is a certified custodian as a New York state-licensed trust, and for proposed revision purposes, the asset managers might migrate from holding Bitcoin directly to owning GBTC shares.
Conclusion
With the crypto world brimming with news, February 15th brought with it U.S. SEC’s new proposed requirements for asset custodians to follow to trade and hold funds. Because of the recent bankruptcy situation in the recent past, Gary Gensler set in motion a new set of regulations for customer asset holders to be certified trusts to certify their products and stay as holders.
This might have a direct effect on the industry’s big names such as Coinbase, which already has a bankruptcy remote feature in place. It’s yet to see how this new regulatory measure unfolds.
