What The SEC’s New Proposal Means for Digital Assets

The US Securities and Exchange Commission (SEC) has proposed a new rule that could prevent investment advisers from holding client assets at cryptocurrency firms. The proposal aims to ensure that investment advisers comply with regulatory requirements for asset protection.

In doing so, the rule could potentially support businesses by providing greater regulatory certainty and investor protection, which can help to foster trust and confidence in the cryptocurrency market.

We have seen in the past how regulations such as Rule 506(b) of Regulation D have benefited businesses in various sectors by enabling issuers to raise capital without registering securities as long as investors self-certify their accredited investor status through an accredited investor verification form.

It remains to be seen how this new SEC proposal will impact advisors, investors, and businesses in the sphere. In any case, the VerifyInvestor.com blog will help inform you about any regulatory changes.

Overview of The SEC Proposal

The proposed rule, which is the first policy put forth by the SEC to enter the cryptocurrency sector, aims to ensure that investment advisers do not expose clients to unnecessary risks associated with cryptocurrency.

Under the proposal, investment advisers who hold client assets would need to demonstrate that they have implemented adequate measures to protect those assets, such as through a qualified custodian or another third-party service provider. This would apply to all types of assets, including cryptocurrency assets.

A qualified custodian is a financial institution, such as a bank, that is authorized to hold and safeguard securities and other assets on behalf of its clients. These custodians must meet certain requirements, such as having a certain level of net capital and adhering to specific reporting standards. They also generally have established procedures and controls to ensure that client assets are protected from loss, theft, or misuse.

The SEC notes that while some custodians and service providers are now offering solutions for holding cryptocurrency assets, these solutions may not yet be fully tested or widely adopted, and may therefore pose additional risks to investors.

The proposal will now be subject to a public comment period, during which stakeholders can provide feedback and suggestions for revisions. Following this period, the SEC will consider the feedback and make any necessary revisions before finalizing the rule.

What’s next?

If the rule does go into effect, it will be the first significant federal regulation governing the custody of digital assets. This could have a major impact on both individuals and entities that hold or trade cryptocurrency, as well as on those who provide services to them.

It will also create greater transparency and accountability in the industry. This could ultimately help to attract more institutional investors and other large investors to the cryptocurrency market, which could provide businesses with more opportunities to raise capital.

Overall, while the proposal may present some short-term challenges for investment advisers and cryptocurrency firms, it could ultimately help to promote a more stable and secure cryptocurrency market, which could support businesses operating in this market over the long term