SEC to target crypto firms operating as ‘qualified custodians’ — Report

The United States Securities and Exchange Commission (SEC) is reportedly planning to propose new rule changes this week that could impact what services crypto firms can offer their clients. 

According to a Feb. 14 report from Bloomberg citing “people familiar with the matter,” the securities regulator is working on a draft proposal that would make it difficult for crypto firms to hold digital assets on their client’s behalf as “qualified custodians.”

This may, in turn, affect the many hedge funds, private equity firms and pension funds that work alongside such crypto firms.

According to those cited, a five-member SEC panel will vote on Feb. 15 on whether the proposal proceeds to the next stage.

A majority vote — three out of five — will be needed for the rest of the SEC to vote on the proposal officially. If approved, the proposal will be amended with feedback where necessary.

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While the SEC has deliberated on what should be required to be a qualified custodian of cryptocurrencies since March 2019, people familiar with the matter said it isn’t clear what specific changes the U.S. financial watchdog is seeking.

If finalized, Bloomberg explained that some crypto firms might have to move their customer’s digital asset holdings elsewhere.

The report added that these financial institutions might be subject to “surprise audits” related to their custodial relationships or other ramifications.

Related: SEC chair issues warning to crypto firms after action on Kraken staking

The news of Wednesday’s vote proposal comes after a Jan. 26 report from Reuters suggesting the SEC would soon pursue Wall Street investment advisers over how they’ve offered crypto custody to their clients.

In recent days, the SEC has had its hands full with Paxos Trust — the issuer of the Binance USD (BUSD) stablecoin — which they believe in having issued as an unregistered security.

Paxos said they would be prepared to “vigorously litigate” if necessary.