Blockchain Association Calls for Revisions to SEC Custody Rule

The Blockchain Association claims that the SEC’s proposed custody rule fails to “address the unique technological aspects of digital assets”

article-image

AevanStock/Shutterstock modified by Blockworks

share

SEC Commissioner Hester Peirce isn’t alone in her belief that the SEC’s proposed custody rule would limit access to crypto. 

The Blockchain Association filed a comment letter in response to the SEC’s custody rule on Monday, May 8. 

The letter claims that the proposed rules’ “requirements for qualified custodians in particular would discourage digital asset-native custodians from continuing to provide custodial services, which would reduce, rather than increase, protections for advisory clients.”

In February, the SEC proposed rule changes to its custody rule. The changes would broaden the blanket of the rule beyond client funds or securities and would cover client assets under an investment adviser. 

“The proposed rule would also enhance protections for certain securities and physical assets that cannot be maintained by a qualified custodian,” the SEC said

However, the need for “qualified custodians” would prevent “digital asset-native custodians from continuing to provide custodial services, which would reduce, rather than increase, protections for advisory clients,” the Association claims.

It believes that the rule, as it stands, needs revisions to “adequately account” for digital asset features. It suggested that the SEC “permit advisers to utilize trading platforms that are affiliated with qualified custodians, subject to certain heightened controls.” 

“In addition to mandating an internal control report, the Proposed Rule could require qualified custodians with affiliated exchange platforms to undergo more frequent surprise examinations, periodic independent cybersecurity audits, and periodic SEC reporting obligations concerning risk assessments, incident responses, and remediation,” the letter continued. 

The Association also believes that the rule is “inconsistent” with the regulatory framework established under the Advisers Act. 

The Act, established in 1940, was enacted to set up regulations that would prevent or end the abuse of securities.

And it wouldn’t be a letter to the SEC if securities weren’t mentioned. 

The SEC’s statements that digital assets are “currently” securities “under the Custody Rule is at odds with the Administrative Procedure Act,” the letter states.

It continues: “This statement represents a departure from past interpretive positions and imposes a binding norm on market participants that has not been subjected to a proper notice and comment rulemaking in conformance with the APA.”

The SEC has been wrestling with the crypto industry over the definition of security. The commission has charged multiple crypto firms — including Bittrex and Coinbase — with lawsuits, alleging that unregistered securities were among the offerings.


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2023

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Unlocked by Template.png

Research

With the spot ETH ETF approval, the institutions are coming. stETH - given its dominance in marketshare, existing liquid market structures, and highly desirable properties - is poised for institutions.

article-image

The QT taper begins this month…but what does that mean for markets?

article-image

Plus, the rise of RWAs could bring about a significant shift in how real-world investments are managed and accessed

article-image

The distributed cell plan provider started selling its own hotspots in October 2023

article-image

The Brazil-based asset manager’s filing comes during a year of milestone bitcoin and ether fund approvals

article-image

The purchase of five sites in Georgia set to help CleanSpark hit its mid-year operating hash rate target of 20 EH/s

article-image

Plus, it’s beginning to look like we may be in for a cruel summer