The president of SEC (Securities and Exchange Commission) has opened a new regulatory frame for crypto companies. This movement comes after the disastrous collapse of FTX presided by Gary Gensler which resulted in large amount of loss for many clients who had using and trusting FTX.
In the president’s mouth, the crypto companies are not complying with standard qualified custody per the actual law. Instead of segregate correctly investor’s crypto, these platforms have mixed those assets with their own crypto or with another investor’s. Therefore, if the company collapses and go bankrupt, investor assets often become the property of the failed company, leaving online investors in bankruptcy court.
This is why the new proposal that came out the 15th of February is considering expanding and improve the role of qualified custodians when registered investment advisers hold assets on behalf of their investors.
It is important to highlight that the Commission’s custody rule for investment advisers, first adopted in 1962, was last updated in 2009. However, Congress gave new authorities one year later in respond to the financial crisis and Bernie Madoff frauds.
In other words, Congress permitted the adviser custody rule to be extended to include all assets, not only funds and securities. In reality, the plan would protect all types of assets that an assessor may protect, including privately issued securities, real estate, and derivatives.
The SEC is reviewing the policy, which was passed by a panel of five members with four votes against one. This proposed custody regulation will now be subject to a 60-day public comment process. The SEC might then evaluate and change it.