SEC Proposal Could Complicate Crypto Advisers, But Risks May Lurk for Others

• The U.S. SEC proposed a rule that would require registered investment advisors to store digital assets in “qualified custodians” outside of the crypto industry.
• Coinbase and BitGo may be able to qualify for qualified custodian status, but other crypto platforms may face additional risks.
• Lawyers and lobbyists are studying the potential repercussions of this proposal amid increased regulatory action from the SEC.

SEC Proposal on Investment Advisors

The U.S. Securities and Exchange Commission (SEC) recently put forward a proposal that would effectively require registered investment advisors (RIA) to go outside the crypto industry to store digital assets, marking its first formal policy push into the cryptocurrency sector. Under this rule, all clients‘ assets – including crypto assets – must be placed with „qualified custodians“ approved by the agency, which is limited to regulated financial institutions rather than just any crypto trading platform.

Potential Impact on Crypto Platforms

This new regulation could complicate advisers‘ use of certain crypto platforms and has left lawyers and lobbyists pondering its potential repercussions amidst increased regulatory action from the SEC. Overall, Coinbase’s Custody Trust Co., as well as BitGo may still be able to qualify for qualified custodian status; however, other platforms may face additional risks due to their inability to meet these requirements.

Increased Regulatory Action from SEC

The proposed rule is part of an increased effort from the SEC towards more stringent regulation of the cryptocurrency sector. By requiring RIA’s to use qualified custodians when storing client assets, especially those related to cryptocurrencies, it is clear that the agency aims to protect investors from fraud or negligence by ensuring that these funds are being stored safely by regulated financial institutions such as banks or trusts companies rather than unregulated ones like certain crypto trading platforms.

Benefits of Qualified Custodian Requirement

The requirement for investment advisors using qualified custodians could bring some benefits both for investors and those in charge of managing their portfolios alike – investors can rest assured knowing their funds are safe while advisors will have an easier time meeting compliance standards set out by regulators such as periodic audits and reporting requirements associated with these entities that they wouldn’t otherwise need if they were simply using unregulated exchanges or wallets instead. Additionally, it makes it easier for law enforcement agencies like FINRA or CFTC when investigating cases involving fraudulent activity related to customer accounts since they now have access not only records held by one individual entity (the exchange/wallet) but also those held by another (the qualified custodian).


Overall, while there are both pros and cons associated with this proposed regulation regarding qualified custodians, it is clear that increased scrutiny over how customers’ cryptocurrencies are stored is necessary in order to ensure investor protection against fraud or negligence – something which should benefit everyone involved in this rapidly growing market segment in one way or another over time!