Regulatory Tension Mounts as Coinbase’s Chief Legal Officer Responds to SEC’s New Rule Proposal
Coinbase, one of the leading cryptocurrency exchanges in the US, is pushing back against a new rule proposal from the US Securities and Exchange Commission (SEC) regarding registered investment advisers (RIAs) and qualified custodians (QC). The SEC’s proposal, published in March, would require any client assets in an investment adviser’s possession to be held in safekeeping by a qualified custodian. While the requirement already exists for RIAs handling client funds and securities, the SEC’s proposal would expand it to other assets like crypto.
Coinbase’s Chief Legal Officer, Paul Grewal, submitted a comment on the proposal, arguing that the potential rule change is “misguided” and can be improved. While the company agrees with the spirit of the proposal and already complies with many of the new requirements, it believes that the SEC has made inappropriate assumptions about custodial practices based on securities markets and has unnecessarily singled out crypto.
Grewal suggests that the SEC should continue to define state trust companies and other state-regulated financial institutions as qualified custodians, as this works well today and there is no reason to disrupt longstanding Congressional and SEC policy. He also argues that the proposal would ban RIAs from trading on non-qualified custodian crypto exchanges, which would harm both RIAs and their clients, and that the SEC’s rule should tailor standards of care by asset class and client type.
The SEC believes that the proposal would help ensure that advisers do not inappropriately put their investors’ assets at risk. SEC Chair Gary Gensler notes that Congress gave the SEC authority to expand the advisers’ custody rule to apply to all assets, not just funds or securities, and that investors would benefit from the proposal’s changes to enhance the protections that qualified custodians provide.
Clever Robot News Desk 12th May 2023