SEC and cryptocurrencies

SEC may make it harder for hedge funds to work with crypto firms

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The U.S. Securities and Exchange Commission (SEC) plans to propose rule changes that would make it difficult for cryptocurrency firms to hold digital assets on their client’s behalf as “qualified custodians,” Bloomberg reported Tuesday.

See related article: Markets: Bitcoin slumps in broad sell off amid SEC charges against Kraken, regulation worries

Fast facts

  • Hedge funds, pension funds and other institutional investors in digital assets are required to use qualified custodial services to safeguard clients’ funds.
  • The proposed rule change would make it more difficult for cryptocurrency firms to become “qualified custodians” to hold digital assets on behalf of clients.
  • In 2020, the SEC opened a consultation to determine whether state chartered trust companies were qualified custodians. Many crypto asset custodians are state chartered trust companies, including Coinbase Custody Trust, Paxos Trust, and Fidelity Digital Assets. 
  • The new rule, which includes no-warning audits of custodial relationships, may require institutions to find other companies to safeguard the digital assets of clients, according to the Bloomberg report.
  • A five-member SEC panel will vote on Feb. 15 on whether the proposal will proceed to the next stage for public comments. 

See related article: Why the crypto sector needs radical transparency in the post-FTX world

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