The US Securities and Exchange Commission (SEC) has proposed changes to its custody rule for digital assets that would require broker-dealers to take additional steps to safeguard customer funds. However, the proposal has faced opposition from industry proponents, who claim it would restrict investment in cryptocurrencies.
The Blockchain Association, a crypto industry advocacy body, and Web3 venture capital fund Andreessen Horowitz (a16z) have both criticized the proposal, filing letters to the SEC before the May 8 deadline for comments.
In its letter, the Blockchain Association argued that the rule would “drastically curtail investment in digital assets” and claimed that in its current form, the rule is “unlawful.” The association also raised concerns about the potential impact on smaller firms, stating that the proposal would disproportionately affect them.
Similarly, a16z also criticized the proposal in its letter, arguing that it would “stifle innovation” and “limit investor choice.” The venture capital firm also expressed concern that the proposed changes could lead to a “fragmented regulatory landscape,” with different rules in different states.
The SEC’s proposed changes to the custody rule were first announced in November 2020, and have been subject to public comment since then. The changes would require broker-dealers to take additional steps to safeguard customer funds, such as maintaining control over private keys or using a qualified custodian.
The proposal also includes provisions for recordkeeping, reporting, and audits, as well as certain exemptions for smaller firms. The SEC has stated that the changes are necessary to ensure investor protection in the rapidly-evolving world of cryptocurrencies.
However, the proposal has faced criticism from some in the industry, who argue that it would impose overly burdensome requirements on broker-dealers and limit investor choice. Some have also raised concerns that the proposed changes could lead to a patchwork of differing state-level regulations.
The SEC has not yet indicated when it will make a decision on the proposed changes. However, the agency has been stepping up its enforcement actions in the crypto space in recent months, indicating a growing focus on the industry.
Overall, the proposed changes to the SEC’s custody rule for digital assets have faced significant opposition from industry proponents, who argue that they would curtail investment in cryptocurrencies and stifle innovation. The agency will now need to carefully consider these concerns before making a final decision on the changes.
The proposed changes to the SEC’s custody rule for digital assets have faced significant opposition from industry proponents, who argue that they would curtail investment in cryptocurrencies and stifle innovation. The agency will now need to carefully consider these concerns before making a final decision on the changes. The crypto industry is evolving rapidly, and it is essential that regulators strike the right balance between investor protection and innovation.
